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# Calculating ratios: capitalization

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As far as non banking corporations are concerned following ratios determine the corporation to be adequately capitalized or undercapitalized:
(i) Working capital to total asset ratio
(ii) Retained earnings to total asset ratio
(iii) EBIT to total sales ratio
(iv) Market value of equity to book value of liabilities
(v) Sales by total asset
(vi) Time interest earned ratio

Altman Z score is used to find whether a corporation is adequately capitalized or undercapitalized. Altman z-score uses working capital to total asset ratio, retained earnings to total asset ratio, EBIT to total sales ratio, market value of equity to market value of liability ratio, and sales by total asset ratio to determine whether the corporation is well capitalized or undercapitalized. If Altman z score is between 1.81 to 2.99 the corporation is assumed to be adequately capitalized. If the score is more than 2.99 the corporation is assumed to be undercapitalized.

Times interest earned ratio helps to find out whether the corporation is capable enough to repay its interest also helps to find out whether the corporation is adequately capitalized or undercapitalized.

Please calculate the above ratios using the attached PDF document.

https://brainmass.com/economics/banking/calculating-ratios-capitalization-539304

#### Solution Preview

Please see the attached MS Word document for the solutions to the questions asked. Included are the formulas for calculating the listed ratios.

Thank you for using BrainMass.

Altman Z score:
Working capital to Total Asset Ratio:
Working capital to total asset ratio=(Current Asset-Current ...

#### Solution Summary

Capitalization for calculating ratios are analyzed. The time interest earned ratios are provided.

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What is the value of the acquisition target? Please show calculations.
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Year 2 102,000
Year 3 170,000
Year 4 150,000
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Assume merger gains \$25,000,000
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3) Variables involved in this free cash flow problem:
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Depreciation is forecasted to be \$150,000 /year
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Net working capital increase in year one of \$50,000
Decrease in year 5 of \$25,000
Figure the free cash flow from the project in year one. Please show all calculations.

4) Use table below to figure working capital:
a)During the year what was change in working capital?
b) sales= \$52,000
costs=\$39,000
depreciation 0%
Taxes 0%
Figure cash flow. Please show calculations.
Beginning End of Year
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Inventory 12,000 12,500
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Accrued Liabilities 7,500 6,500

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