Finance
1. Why has the stock price fallen despite the fact that net income has increased over the periods under review?
The stock price has fallen because the shareholders were worried about increasing debts and liabilities, that adding two manufacturing factories created and because of how much excesses inventory was created. Both of these changes would result in interest change of 44,000 to 155,000 that the company would have to pay, that impact on the company’s future earnings hurts the company’s image to stockholders causing them to worry.
2. Tabulate your results and briefly comment on the liquidity position of the company between the two periods.
2004
2003
Absolute Liquidity
5/895 = 0.005:1
= 40/355 = 0.11:1
From looking at the absolute liquidity ratios of the firm we would say that the firm is not very liquid at the moment due to the low amount of cash that is on hand and the increase in accounts receivable and inventory from the previous year. When comparing the previous year to this year we can see that the absolute liquidity has decreased by at least half meaning that the company is half as liquid this year as it was in the previous year.
3. How do the market-to-book ratios compare over the two periods and interpret the change in your results.
2004
2003
Market-to-book ratio
=1100/600 = 1.83
=1400/600 = 2.33
In 2003 we can see that the Market-to-book ratio was 2.33, meaning that the shareholders’ investment was being multiplied by a value of 2.33. In 2004 the Market-to-book ratio declined; due to the decrease in the market value of equity, to 1.83. This means that yes the value of the shareholders’ investment isn’t as great as it was the year before, but it is still greater than 1 which means that it is still worth more than what they originally invested in the company for.
4. The board of directors is not clear as to why the cash balance has dropped so much despite the increase in sales and the gross profit
The stock price has fallen because the shareholders were worried about increasing debts and liabilities, that adding two manufacturing factories created and because of how much excesses inventory was created. Both of these changes would result in interest change of 44,000 to 155,000 that the company would have to pay, that impact on the company’s future earnings hurts the company’s image to stockholders causing them to worry.
2. Tabulate your results and briefly comment on the liquidity position of the company between the two periods.
2004
2003
Absolute Liquidity
5/895 = 0.005:1
= 40/355 = 0.11:1
From looking at the absolute liquidity ratios of the firm we would say that the firm is not very liquid at the moment due to the low amount of cash that is on hand and the increase in accounts receivable and inventory from the previous year. When comparing the previous year to this year we can see that the absolute liquidity has decreased by at least half meaning that the company is half as liquid this year as it was in the previous year.
3. How do the market-to-book ratios compare over the two periods and interpret the change in your results.
2004
2003
Market-to-book ratio
=1100/600 = 1.83
=1400/600 = 2.33
In 2003 we can see that the Market-to-book ratio was 2.33, meaning that the shareholders’ investment was being multiplied by a value of 2.33. In 2004 the Market-to-book ratio declined; due to the decrease in the market value of equity, to 1.83. This means that yes the value of the shareholders’ investment isn’t as great as it was the year before, but it is still greater than 1 which means that it is still worth more than what they originally invested in the company for.
4. The board of directors is not clear as to why the cash balance has dropped so much despite the increase in sales and the gross profit