3. Liquidity You are provided with data for YetAnotherCompany ltd for the fiscal
ID: 2472467 • Letter: 3
Question
3. Liquidity You are provided with data for YetAnotherCompany ltd for the fiscal years 2014 and 2015. You are interested in assessing the short and long-term liquidity of the company. In addition, you know that the Cash Flow from Operations (CFO) amounts to 680 in 2014 and 702.2 in 2015.Q1: Assess short-term liquidity risk by computing liquidity cycle, current ratio, quick ratio, and CFO to short-term debt ratio. Q2: Assess long-term by computing following key ratios: financial leverage, solvency ratio, interest coverage ratio, and CFO to debt ratio. Q1: Assess short-term liquidity risk by computing liquidity cycle, current ratio, quick ratio, and CFO to short-term debt ratio. Q2: Assess long-term by computing following key ratios: financial leverage, solvency ratio, interest coverage ratio, and CFO to debt ratio. company. In addition. to 680 in 2014 and 702.2 in 2015. 2015 950.0 -534.2 415.8 -140 -120.1 -10 145.7 .55 Income Statement: Revenue Cost of sales Gross profit Staff costs Other administrative costs Other operating income EBITDA Depreciation and amortization 2014 890.0 -501.8 388.2 130 -123.3 -10 124.9 -50 90.7 -7 83.7 -25.11 58.6 74.9 EBIT Net financial expenses Income before tax Tax Income after tax -5 69.9 -20.97 48.9 Balance Sheet: Non-current assets Property, plant, and equipment Intangible assets Financial assets Other receivable 2014 257.6 2015 268.7 726.0 0.2 51.8 1 035.6 729.2 0.3 51.8 1 050.0 Current assets Inventory Trade and other receivables Derivative financial instrumnets Cash and short term deposits 140.6 53.2 20.4 126.3 72.2 16.4 161.1 206.3 Total assets375.3 1 410.9 421.2 1 471.2
Explanation / Answer
Answer 1.Short Term Liquidity Risk for the year 2015
Liquidity Cycle = DIO + DSO-DPO
where
DIO = Days Inventory Outstanding
DSO= Days Sales Outstanding
DPO = Days Payable Outstanding
DIO =Average Inventory / Cost of Sales per day = 133.45/1.46 = 91.40 = 91
Cost of Sales per day = 534.2/ 365 = 1.46
Average Inventory = Beginning Inventory + Ending Inventory / 2 = 140.6 + 126.3/2 =133.45
DSO = Average Accounts Receivable / Net Sales per day = 62.7 / 2.6 =24
Net Sales per day = 950/365 = 2.6
Average Accounts Receivable = Beginning Accounts Receivable + Ending Accounts Receivable / 2
= 53.2 +72.2 / 2 = 62.7
DPO= Average Accounts Payable / Cost of Sales per day = 94.15/ 1.46 = 64.48 = 64
Cost of Sales per day = 534.2/ 365 = 1.46
Average Accounts Payable = Beginning Accounts Payable + Ending Accounts Payable / 2
= 100.8 + 87.5 /2 = 94.15
Liquidity Cycle = DIO + DSO-DPO = 91+24-64 = 51days
CURRENT RATIO = CURRENT ASSETS / CURRENT LIABLITIES = 421.2 / 327.3 = 1.28 times
Current Assets = 421.2 , Current Liabilities = 327.3
QUICK RATIO = (Current Assets - Inventory) / Current Liabilities = 294.9 / 327.3 = 0.9 times
Current Assets - Inventory = 421.2 - 126.3 = 294.9
CFO to Debt Ratio = Operating Cash Flow / Short term Debt = 702.2/ 327.3= 2.14
Short term Debt = Current Liabilities =327.3
Answer 2.
Financial Leverage = EBIT / EBIT - Interest = 90.7 / 90.7 -7 = 90.7 / 83.7 = 1.08
Solvency ratio = (After Tax Net Profit + Depreciation) / Total liabilities = 58.6 + 55 / 1297.4 = 0.087
Interest Coverage Ratio = EBIT / Interest Expense = 90.7/ 7 = 12.95 times
CFO to Debt Ratio = Operating Cash Flow / Total Debt = 702.2 / 1297.4 = 0.54
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.