Corporate Finance
Part 1: Fianacial Ratios
After having the financial information about Deep water experts company, we have generated the financial ratios for the company for the years 2010, 2011 respectively as below and has the following comments:
Liquidity:
There is more than one ratio that measures the liquidity for a company which is included in the following table: Ratio Type | 2011 | 2010 | Liquidity | Current Ratio | 3.29 | 2.67 | Quick Ratio | 2.2 | 1.798 | Cash Ratio | 1.56 | 1.08 |
1. Current ratio: indicates a company's ability to meet short-term debt obligations.
For 2011= 3.29 and for 2010= 2.67.
From creditor's view a high current ratio is better than a low current ratio and as we can see it increased in 2011.
From investors' view current ratio is too high (much more than 2), which indicates that the company may not be using its current assets or its short-term financing facilities efficiently. This may also indicate problems in working capital management. 2. Quick ratio: is a measure of a company's ability to meet its short-term obligations using its most liquid assets.
For 2011= 2.2 and for 2010= 1.798.
We can notice that it increased, which means a better position of the company for both creditors and investors. 3. Cash ratio: a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities.
For 2011= 1.56 and for 2010= 1.08.
The ratio increased significantly and it is so high which means that the company is holding too much cash and not investing it, which means it is losing a profit that can be gained from investing it.
Leverage : Leverage 2011 2010 | Total Debt Ratio | 0.5 | 0.417 | Debt Equity Ratio | 1 | 0.716 | Equity Multiplier | 2 | 1.716 | Time Interest Earned | 3.295 | 4.61 | Cash Coverage Ratio | 5.52 | 7.53 |
There is more than one ratio that measures the leverage for a company. 1.
After having the financial information about Deep water experts company, we have generated the financial ratios for the company for the years 2010, 2011 respectively as below and has the following comments:
Liquidity:
There is more than one ratio that measures the liquidity for a company which is included in the following table: Ratio Type | 2011 | 2010 | Liquidity | Current Ratio | 3.29 | 2.67 | Quick Ratio | 2.2 | 1.798 | Cash Ratio | 1.56 | 1.08 |
1. Current ratio: indicates a company's ability to meet short-term debt obligations.
For 2011= 3.29 and for 2010= 2.67.
From creditor's view a high current ratio is better than a low current ratio and as we can see it increased in 2011.
From investors' view current ratio is too high (much more than 2), which indicates that the company may not be using its current assets or its short-term financing facilities efficiently. This may also indicate problems in working capital management. 2. Quick ratio: is a measure of a company's ability to meet its short-term obligations using its most liquid assets.
For 2011= 2.2 and for 2010= 1.798.
We can notice that it increased, which means a better position of the company for both creditors and investors. 3. Cash ratio: a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities.
For 2011= 1.56 and for 2010= 1.08.
The ratio increased significantly and it is so high which means that the company is holding too much cash and not investing it, which means it is losing a profit that can be gained from investing it.
Leverage : Leverage 2011 2010 | Total Debt Ratio | 0.5 | 0.417 | Debt Equity Ratio | 1 | 0.716 | Equity Multiplier | 2 | 1.716 | Time Interest Earned | 3.295 | 4.61 | Cash Coverage Ratio | 5.52 | 7.53 |
There is more than one ratio that measures the leverage for a company. 1.