Gemini Electronics Ltd: Financial Analysis

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Financial Management Assignment Full Name Institution Affiliation Financial Management Assignment Objective Gemini Electronics Ltd. is a U.S.-based electronics company that wishes to expand its business. Before the expansion plans are finalized, the founder of the company wants to obtain an independent evaluation of Gemini’s financial condition. The objective of this report is to present a financial analysis of Gemini Electronics Ltd. The analysis will reveal the economic strengths and weaknesses and financial feasibility of the expansion projects of the company. A vertical analysis of the company’s balance sheet and the income statement for the year 2009 has already been conducted. The analysis revealed the annual changes to…show more content…
Debt Ratio and Times Interest Earned Ratio, which will be discussed for the purposes of this report. Debt Utilization Ratios indicate the solvency and long-term financial health of a company. Debt to Total Assets or Debt Ratio is a solvency ratio that indicates the degree of reliance a company places on debt to finance its assets (Rodrigues, 2014). The trend in Gemini’s debt ratio has been similar to the trend in its liquidity ratios. The debt ratio increased from 0.43 times to 0.52 times from 2005 to 2007 but declined to 0.47 times in 2008 and remained so in 2009. The company’s debt ratio agrees with the industry average of 0.50 times. The decline in Gemini’s debt ratio indicates a reduction in business risk caused due to the decrease in debt reliance. Times Interest Earned or the Interest Coverage Ratio is “a measure of the creditworthiness of a company” (Rodrigues, 2014). It indicates the company’s ability to settle its interest obligations with the total income it earns before paying taxes. Gemini had a ratio of 5.32 times during 2005 which increased to 5.87 times during the next year. In 2007, the ratio declined to 3.84 times but then increased to 4.73 times in 2008. The ratio finally came down to 3.63 times during 2009 which was still far better than the industry average of 3.21 times. The fluctuating trend reveals that where the company’s before tax profits have declined significantly, its interest expense has increased dramatically over a term of five
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