HOSF 1277 Final Exam 30% Prepared by: David Cleary Prepared for: George Brown College Course: HOSF 1277 HOSF 1277 Final Exam Cara Foods Instructions In your previously created groups you are to...

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Answer To: HOSF 1277 Final Exam 30% Prepared by: David Cleary Prepared for: George Brown College Course: HOSF...

Ca answered on Jun 22 2021
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HOSF 1277
FINAL EXAM 30%
001
Ratio analysis is crucial for investment decisions. It not only helps in knowing how the company has been performing but also makes it easy for investors to compare companies in the same industry and zero in on the best investment option.
· Liquidity Analysis
Company Liquidity Rates are important in determining whether a company is able to meet their short-term obligations, and to what extent. A rating
of 1 is better than a rating of less than 1, but it's not good.
Lenders and investors like to see high interest rates, such as 2 or 3. If the rate is high, the company is able to pay off its short-term debt. A less than 1 rating means that the company is facing a negative network of operations and could face a shortage of funds.
In a given case the current assets of the company are unable to pay the current debts, and it means a negative operating cost that raises a red flag. It is an indication of the decline in the company's market capitalization and the ability to meet the needs of the lender. Current acceptable rates vary from industry to industry. In a healthy business, the current rate will typically fall between 1.5 and 3. If the current liability exceeds the current assets (e.g., the current rate is less than 1), then it indicates that the company may have problems meeting its short-term obligations.
· A low quick ratio usually a very risky area because the company has enough current assets, other than stock, to pay off the nearest debt. This also means that they rely heavily on the supply of suitable goods to keep you afloat in the short term. A sharp drop in sales could leave the company liable. The rate is low and creates anxiety for potential investors and lenders due to short-term risks
· Leverage and solvency
· Interpreting the Interest Coverage Ratio
Generally, an interest rate of at least two (2) is considered the minimum acceptable amount of a company with a strong, stable profitability. Analysts prefer to see an average of three (3) or better findings. Conversely, rate of less than one (1) indicates that the company is unable to meet its interest-bearing obligations and, therefore, does not have good financial health.
A higher rate indicates that there is a sufficient profit to obtain credit, but it may also mean that the company is not using its debt properly.
· Debt to equity ratio
Low equity debt usually means a financially stable business. Unlike stock financing, a debt must be paid to the lender. Since debt financing also requires debt consolidation or regular interest payments, debt can be a more costly form of finance than equity. Companies that use large amounts of credit may not be able to pay.
Lenders view high debt equity ratios as a risk because it shows that investors have not paid for services as there are more lenders. In other words, investors do not have as much skin in this game as do lenders. This could mean that investors do not want to fund business activities because the company is not doing well. Lack of performance could be a reason for the company to demand additional credit. A 1: 1 ratio is often considered to satisfy most companies.
· If the ratio is higher, the lenders will have interference in the management as they have a higher stake in the business.
· The owner will have very fewer chances of borrowing further in the case of urgent requirements if the ratio is on a higher side but urgency can be managed well if the ratio is on the lower side.
· The Higher burden of interest will keep the profits under pressure.
· Total-Debt-to-Total-Assets Ratio
A ratio below 1, meanwhile, indicates that a greater portion of a company's assets is funded by equity.
· Efficiency Ratios
· High Receivables Turnover
The higher interest rate available can indicate that a company's collection of available accounts is active and the company has a high number of quality customers paying their bills immediately. A higher income level may also indicate that the company is operating in cash.
A higher rate would also suggest that the company saves when it comes to increasing debt to its customers. Sustainable credit policy can be helpful as it can help a company avoid extending debt to customers who may not be able to pay on time.
On the other hand, if a company's credit policy is too tight, it could drive potential buyers out. These customers can then do business with competitors who will give them credit. If a...
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