Maris Marble Company (MMC) was founded in 1981 by George Zervos and Gus Maris. It is structured as a partnership between the two, with them owning 20% and 60% respectively. Their main business deals in marble of granite products as well as marble. Some of their popular products are slabs, tiles, blocks, as well as customized products of this nature. Their main target customers are people in the building industry such as builders and contractors as well as individuals. They also sell to retail stores throughout the southern region of Texas. From the company data over the period of three years and two projected years, the company profitability ratios shows a good performance that has been on the positive movement over the three years and expected …show more content…
They are all fluctuating making it hard to obtain financing. The debt ratio has performed poorly and is on the drop between 1989 and 1993. The same case applies to debt to worth ratio, and debt to tangible net worth. All these trends are unfavorable and spells lack of sources of financing for the company in future. Curiously, the company has been performing poorly, with 1993 expected to give the worst results of all period. Most of these ratios are also below the desired levels such as the debt to tangible net worth and debt to worth going well under 1 and even below 0.5. These are unfavorable figures and would deny the company any finances when …show more content…
Further, it has a high conversion of its assets to sales and consequent profit. Furthermore, investors continue to get back their money because the business is currently profitable and would increase their funding even if the ability of the company to pay debt has not been performing well. The main weaknesses include the company inability to recover debts within good time. Poor leverage ratios keeps the organization at risk of failing to get financing when it is needed without selling part of its equity. The leverage ratios are poorly performing and in some cases below the healthy threshold. The company might be under pressure to cede more equity in case of needs for finances in future. Another weakness is its structure as a partnership where there are very few sources of financing, unlike companies that may have better diversity in sources for their finances. Although the company seems well managed and profitable, the owners, who are the main decision makers may not be the best in creating business strategies for the
The Corporation has sustained losses and negative cash flows from operations since its inception. The Corporation is exposed to liquidity risk as it continues to have net cash outflows to support its operations.
Exelixis Inc. also has a capital structure that is highly weighted on debt. The debt is likely needed based upon their poor financial position, but in ten years it would make sense to have more of the capital structure to be elsewhere. In addition, the cash flow per share has not been consistent. This likely means that Exelsis Inc. is not utilizing the debt to grow and instead to simply upkeep its operational expenses. Revenues and revenues per share have also fluctuated significantly, which could potentially mean that the organization does not have an effective business strategy and/or product line.
This ratio helps in analysing the position of the company to satisfy its short term debts within a period of one year. The higher the current ratio would be the more the company will be in position to satisfy its short term debts.
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
During the last eight quarter, debt to assets ratio increased from 62% to 68% and the reason for that is because the total assets have decreased from $12.3 billion to $9.7 billion. Total liabilities have decreased as well from $7.6 billion to $6.6 billion. Even though both assets and liabilities decreased, assets decreased by much high percentage than liabilities did. For the last six quarters, the times interest earned ratio was negative which means that the EBIT was negative. Along with that, the EBIT is decline more and more every quarter. During the third quarter in 2011, EBIT was -$171 million and during the fourth quarter in 2012, it was -$745 million. Overall, both liquid and leverage ratios indicate the financial health of the company is declining. Company is losing assets (mostly cash) and they are not as liquid as they used to be. The assumption is that the company will be out of cash by the end of 2013.
It is essentially the company’s ability to pay off its liabilities with its assets. The debt to equity ratio compares liabilities to assets and shows creditors and investors what companies are considered risky to work with. The financial ratio reports for the fiscal year showed that Verizon’s debt to equity ratio was 898.8 compared to AT&Ts ratio of 88.0. Looking at these ratios AT&T would be the more safe company to work with, whereas Verizon’s ratio can be viewed by investors and creditors as more risky. A higher debt to equity ratio illustrates that a company might not be preforming as well as it should as is the reason it would be seeking extra financing for its debts.
Debt-to-equity ratio: Evaluates the capital structure of a company. A ratio of more than 1 implies that the company is a leveraged firm; less than 1 implies that it is a conservative one. Debt-to-equity ratio formula is Total liabilities / Total Equity. In 2017, Costco Debt equity ratio was 2.28. This means Costco will not be able to generate enough cash to pay its debt
Their weaknesses would be that their current major business is along the East Coast. Though they have made considerable efforts to expand to various parts of the country, their main weakness is their limited availability in
This leads them to have low levels of debt even though the company is doing well
Debit ratio-the ratio of liabilities to assets indicates that their liabilities are increasing as a proportion of total assets. This is having an affect on the Times Interest Earned ratio, which is deteriorating rapidly. It also indicates their obligations are growing- another indication of potential cash flow problems and an inherent risk to a going concern issue that might influence the potential manipulation of the financial
...rs, setting a good trend for the corporation. They also have a very low debt-to-equity ratio, indicating that they have enough equity to easily pay off any funds acquired from creditors. As a creditor I would feel safe in lending them funds for any future projects or endeavors.
Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering price are too low. Although long-term debt is a better financing choice, a few of the drawbacks are pointed out. Debt holders claim profit before equity. holders, so the chances that profits may be lower than expected. increases risk to equity, may reduce or impede stock value. However, the snares are still a bit snare.
In spite of this, you can find certain circumstances, where ratios are misused which can guide the management to wrong direction. One of the drawbacks includes that ratio analysis is utilized on the basis of financial statements. Amount of constraints of financial statements could have an effect on the precision or quality of ratio analysis .Moreover, ratio analysis intensely depends upon quantitative facts and figures and it ignores qualitative data. In addition to this, it is merely utilized as a tool for assessing the performance of business activities but ratio analysis certainly possesses some latitude for window dressing (Ahmed, 2006).A major limitation is the fact that it makes comparison of ratios between enterprises which happens to be questionable on account of variances in methods of accounting operation and
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound. Among the study’s findings were that the deciding factor of the predictor of bankruptcy should not be only a few ratios, as the measure of a company’s financial solvency may differ as the firm’s situations differ. The important question is to which ratios are to be used and of those ratios chosen, which ratios are given priority weight.