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Financial Analysis

Find attacheed excel spreadsheet, need assistance Summarizing the firm's overall financial position on the basis of your findings in Part B.


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Current ratio is the primary liquidity ratio (Brigham & Houston, 2007), where liquidity ratio illustrates whether a firm be able to pay off its debts as they fall due in the coming year. The current ratios for years 2004, 2005, and 2006 are all greater than the industry average of 1.5 in 2006. This means that the company's current assets rise faster than its current liabilities, meaning that the company has fewer short-term debts.

Debt ratio or total debt to total assets is used to "measure the percentage of funds provided by creditors" (Brigham & Houston, 2007, p. 110). Comparing the company's debt ratio to the industry average, the company has higher debt ratio, which is almost double the industry average. This indicates that creditors supply almost the total financing for the firm. Since total debt includes all current liabilities and long-term debt the company will be in a risky situation because creditors prefer low debt ratios. In this situation, if the company will borrow additional funds, they may face the risk of bankruptcy. Thus, they will need to consider using their retained earnings fund and raise more equity with less total assets, and large sales to persuade shareholders to buy their stocks. In addition, high debt ratio of the company may be due to its longer average collection period, making cash generation more difficult, which ...

Solution Summary

The solution provides a deep interrelated analysis of a firm's financial position. It gives students a clear understanding of the ratio analysis concept and provides clear definition of each ratio.