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# Assessment of Ratios

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You are a banker for XYZ bank in Buffalo. Your sister in law owns Aspen Ski resort. She has approched you about securing a loan for the addition of more resort condos. She has provided you information in the attached appendix for your analysis about the feasibility of making the loan to her company, Aspen Ski resort. You are writing up a written assessment of the company based on this information.

In your assessment you will need to provide the following information:

Select three promising ratios and explain what they mean.

Select three troubling ratios and explain what they mean.

Based on your ratio analysis, provide rational as to why you would or would not present this proposal to the bank's loan committee.

#### Solution Preview

Financial Analysis
In financial analysis, we need qualitative information and try to read between the numbers. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
We can use ratio analysis to try to tell us whether the business

1. Is profitable
2. Has enough money to pay its bills
3. Could be paying its employees higher wages
4. Is paying its share of tax
5. Is using its assets efficiently
6. Has a gearing problem
7. Is a candidate for being bought by another company or investor
(www.bized.ac.uk)

Select three promising ratios and explain what they mean.
Current ratio
Liquidity is a company's ability to meet its maturing short-term obligations. Liquidity is important for conducting business activity especially in times of adversity such as when operating losses occur due to economic conditions or drastic price increases of raw materials or parts. Liquidity must be sufficient to cushion such losses. If ...

#### Solution Summary

This solution of 755 words conducts a ratio analysis on the business and it looks at the current ratio, ROE, turnover ratio, profitability, inventory turnover, return ratios, and debt ratios. All references used are included.

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