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Free cash flow= cash from operations- capital expenditures The free cash flow represents the financial ability of the company; that is its ability to engage in investment activities that goes beyond the planned investment activities (Walter, Harrison, & Horngren, 2003). However, noting that many investment activities of companies are quite significant, caution should be taken when implementing any investment activity that falls above the budgeted investments. Cash from operations is also referred to as earnings before interest net of depreciation and amortization. Therefore; Free cash flow= 17,237,000+800,000 =18,037,000 2. Calculate Jaedan’s liquidity. A company’s liquidity ratios are used in determining the organizations capacity to meet its short-term obligations when they fall due. Liquidity ratios are important to the investors when conducting fundamental analysis of the firm. High values imply that a firm has adequate assets compared to liabilities and should therefore can pay off short-term debts with ease. Current ratio helps to assess the company’s current assets ability to pay-off current liabilities. The liquidity ratios include: Current ratio= Current Assets/ Current liabilities =15,066,000/4,342,000 =3.5 Industry current ratio= 3.26 Quick ratio also is also known as acid test ratio. It is more stringent and refined than current ratio. The ratio uses assets that are highly liquid. The main asset left out in the numerator component is inventory which is quite difficult to liquidate in timely period and at market value. Quick ratio is highly conservative as it focuses on short-term investments, cash and accounts receivable. Quick Ratio= (Cash & Equivalents + Short-Term Investments + Accounts Receivable) ? Current Liabilities = (3,689,000+1,836,000+5,423,000)/4,342,000 =2.52 Industry ratio= 2.19 Cash ratio is the highly conservative among the three liquidity ratios. The ratio simply concerns assets that can be utilized to pay short-term debts thereby disregarding short-term investments and receivables. The fact behind exclusion of short-term investments and receivables is that they cannot be monetized as soon as the firm may be requiring the funds. Cash Ratio = Cash & Equivalents ? Current Liabilities = 3,689,000/4,342,000 =0.85 3. Calculate Jaedan’s debt and profitability ratios. Debt Ratio Debt ratio helps to compare company’s total debt to its total assets. It sheds light on the leverage applied by the company. A lower ratio indicates that the company is less reliant on money borrowed from others (Nobes & Parker, 2000). Therefore the lesser the percentage the stronger the company’s equity position and the higher the ratio the riskier the company is. Debt ratio= Total liabilities/Total assets = 4,342,000/ (8,851,000+15,066,000) = 4,342,000/23,917,000 = 0.18 or 18% Industry ratio= 39.36% Profitability ratios are helpful in comparing how profitable a firm is in the industry. These ratios include: Gross margin ratios Gross margin is the difference between company sales and the cost of such sales. Simply, it is the amount that a company keeps as gross profit. Gross margin is expressed in percentage terms and a higher margin indicates that the company is making more profit. Gross margin= Gross profit/ Sales =19,658,000/42,000,000 =0.47 or 47% Industry ratio= 23.74% Operating margin Operating margins indicates how much a firm makes of from its sales. It indicates company’s performance as it accounts for other important costs of operating income, besides costs of
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Cash Flow (Free) gives far clear picture about the company for it takes into account the change in working capital as well as all investments made during the period. It can be expressed as under. Cash Flow = Net Profit+ Depreciation/Amortization-Expenditures-changes in working cap.
A personal balance is mainly a list of individual assets, liabilities and the network of the individual. The balance sheet indicates the financial position of the individual at a particular time. It contains the assets, the liabilities and network of the individual.
The calculation of free cash flow is important as it helps the company to understand the opportunities and scopes which will enable to maximize the shareholder’s wealth. The calculation of free cash flow is mentioned below: Free Cash Flow= Earnings before Interest and Tax (1-Tax Rate) + Depreciation – Total Change in the Net Working capital – Capital Expenditure Calculation of Free Cash flow Particulars Amount(in $) EBIT 13119000 Depreciation 800000 Tax Rate 34% Change in Fixed assets 2932000 Changes in Current assets 4530181 Changes in Accruals 150000 Changes in Accounts Payable 190000 Changes in Net Working Capital 4168181 Capital Expenditure 7802181 Free Cash Flow -2511822 The free
they are impatient with regards to their consumption behaviour and the sooner they are able to consume the better. Secondly the money receivable in future has a certain degree of uncertainty; anything may happen in the future, as according to an old saying a bird in hand is worth two in the bush and thirdly in a certain time period the prices of commodities which the money can buy may rise which is called as inflation thus reducing the purchasing power of that certain amount of money.
Cash flows exclude movements between the items that constitute cash or cash equivalent because these are part of the cash management of an enterprise rather than part of its operating investing and financing activities.
Primary objective of the cash flow statement is to provide information regarding the cash receipts and cash payments of an enterprise for an accounting period.
In addition the negative net cash flows from operations is negative due to the increases in the working capital. Moreover, the firm borrowed heavily and it used $711950 on the Fixed Assets. The firm also sold
It is used for the basis of business planning and budgeting. Below is the overall professional comparison of the five companies that were selected for the project. The overall comparison is for the three activities, however, it focuses more on the operating activities
Microsoft serves over 100 countries globally.
Its main purpose is developing and selling their variety of products to consumers. Their products are always up to date; it’s involved in making products such as computer PC, operating systems and
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