These negative cash flows are mainly resulting from a negative cash flow from operations. This means that the company is not bringing in enough cash to finance its cash expenditures. Also the company bought fixed assets in this period which caused decrease in cash. Even though there was an increase in short-term debt financing in 1995, the net cash flow was still negative showing that the problem wasn't in the amount of financing the company received, but in the amount of money the company brought it.
Liquidity Ratios .
In the period of 1993-1995, SDI has a negative trend in current ratio which lowers to 1.90 compared to industry's 2.25, in 1995. From the investor's point of view, current ratio should not be lower than industry average, because it indicates probability that company might be in financial difficulty. One of the indicators of company having financial difficulty is an effort to prolong payments of accounts payable while increasing its borrowing. This is the scenario SDI faces because it changed its credit policy, decreased prices, and took additional short-term and long-term loans in 1994-1995. The company did not receive sufficient level of sales to cover its short-term obligations, which resulted in deterioration of SDI's short-term solvency. .
The quick ratio or acid test ratio substantially decreased in period of 1993-1995, being drastically lower than industry average, 0.77 to 1.20. A reason for such a decrease was sharply increased inventories in 1994-1995. Increased level of production and stimulated sales by new credit policy did not bring expected effect in sales resulting in even more increased inventories. Being the least liquid asset, increased inventory of SDI is one of the reasons in SDI's solvency problem.
Leverage Ratios.
The debt ratio shows us that the company has a growing percentage of assets being funded by liabilities. This means a greater amount of money being used to buy assets is coming from liabilities.