Financial Analysis: An Analysis Of Capital Structure Analysis

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Capital structure analysis
Liquidity
Liquidity is the important meaning of financial risk and solvency. It refers to the extent to which assets can be converted into cash without affecting the asset 's price during normal business operations. Because of the cash flow problem and especially the cash flow problem, many enterprises are bankrupt. As a result, the liquid ratio or the current ratio are used to compare the capacity of the short term debt between the two different companies.
At first, the current ratio is a sign of the company 's market liquidity and ability to meet the requirements of the creditors., which is just the flow of assets divided by current liabilities. As shown in Appendices 1, the current ratio of Aristocrat is 2.15, it is usually sufficient to meet short-term business needs. Ainsworth’s current ratio is 4.361, it means that the company should hold assets rather than using them to grow the business.
Moreover, the Quick or Acid-test ratio is a company 's short-term liquidity indicator, and it is the fundamental …show more content…

Hence the debt is accounted for 55.29% of total assets in Aristocrat, while Ainsworth only 15.57% of the total assets are debt. In other words, this shows that there is $0.5529 of debt finance in every $1 of total assets in Aristocrat, but there is only $0.1557 of debt finance for Ainsworth. However, the higher the ratio of liabilities to total assets, so that the higher the financial risk of the company. The company 's capital structure has a direct impact on its financial risk, which is not covered by the risk of the company 's financial obligations required. Here, the major assets of Aristocrat are from long-term debt financing, while most of assets are made up of equity in Ainsworth. Therefore, the Ainsworth may be less risk than the Aristocrat, because Aristocrat bears a higher proportion of financial liabilities and

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