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Financial Management:Benson Corporation - Assignment Example

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The financial performance of Benson Corporation, in terms of financial ratios is given below: Ratio Formula 2009 2010 2011 Comment LIQUIDITY Current Current Assets 2.37x 2.36x 1.62x Poor Current Liabilities Quick Current Assets - Inventories 0.87x 0.88x 0.62x Poor Current Liabilities ASSET MANAGEMENT Inventory Turnover Sales 11.42x 12.16x 12.5x OK Inventories Day Sales Outstanding Receivables 7 days 6 days 7 days OK Annual Sales/360 Fixed Assets Turnover Sales 1.82x 1.8x 1.67x Low Net Fixed Assets Total Assets Turnover Sales 1.01x 1.05x 1.03x Low Total Assets DEBT MANAGEMENT Debt to Asset Total Debt 53% 55% 59% High (Risky) Total Assets Time Interest Earned EBIT 2.66x 2.77x 1.73x High (Risky)…
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Download file to see previous pages As compared to its 2009 performance, company seems to be in a much more difficult position. All four major financial aspects (liquidity, asset management, leverage and profitability) of Benson Corporations are prone to severe dangers. Liquidity position of the company is worsening as the current ratio and quick ratio has decreased from 2.37 times to 1.62 times and from 0.87 times to 0.62 times respectively which indicates that the Benson Company ‘s current assets are running short to cover their liabilities. The only slight satisfactory position of Benson Corporation lies in asset management of the company where the performance of the company seems to be more stable. ...
Gloomy and dark profitability pictures can also be witnessed as profit margin has severely declined from 3.45% to 2.2%. Return On Assets and Return on Equity also disappointing shareholders as the decrease in ROA and ROE from3.5% to 2.27% and 7.54% to 5.64% can be observed. Cash flows for the Benson Corporation Project $ in million Years 0 1 2 3 4 5 6 Capital Investment (2.000) - - - - - - Cumulative Working Capital (0.200) (0.250) (0.313) (0.344) (0.378) (0.416) - Sales - 1.200 1.500 1.875 2.063 2.269 2.496 Fixed Cash Operating Expense - (0.150) (0.150) (0.150) (0.130) (0.130) (0.130) Variable Cash Operating Expense - (0.480) (0.585) (0.713) (0.784) (0.862) (0.948) Depreciation - 0.600 0.700 0.400 0.200 0.100 - PBT - (0.030) 0.065 0.613 0.949 1.177 1.417 Tax (30%) - 0.009 (0.020) (0.184) (0.285) (0.353) (0.425) PAT - (0.021) 0.455 0.429 0.664 0.824 0.992 Net Salvage Value of Capital Investment - - - - - - 0.150 Recovery of Working Capital - - - - - - 0.416 Initial Investment (2.000) - - - - - - Operating Cash Inflows (PAT+Dep) - 0.579 1.155 0.829 0.864 0.924 0.992 Incremental Working Capital (0.200) (0.050) (0.063) (0.031) (0.034) (0.038) 0.416 Terminal Cash Inflow (NSV+Rec WC) - - - - - - 0.566 Net Cash flows (Int Inv+OCF-Inc WC+TCF) (2.200) 0.529 1.093 0.798 0.830 0.886 1.974 NPV at 12% 1.5545 NPV at 12.8% 1.4532 NPV at 13.25% 1.3984 NPV at 13.2% 1.4044 Project Appraisal using NPV Behind the acceptance or rejection of any given project, both financial and non-financial factors need to be considered. On the financial terms, the best measure or tool to evaluate a certain project is to use Net Present Value. NPV approach depicts the present value of expected future cash flows in absolute terms; as a result it ...Download file to see next pagesRead More
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