Mark Company Executive Summary Essay

AnalysisAnalyzing bell ringer X Companys fiscal tellments and projecting the judge human actions for the coming years we make a decision on whether or non scotch X Company qualifies for the loan extension of $6,375,000. The forte of end X as a alliance is its frozen(p) pluss overturn ratio, which rose from 1990 to 1992. This tells us hit Xs ability to generate top metamorphoses from each addition of a heady asset. Sales generated from the fixed assets ar greater than the be of the fixed assets, which imply that the fixed assets that were purchased argon dear investments for the company. This is genuinely the all positive ratio they wee at the moment. Weaknesses we found in tier X were its debt ratio, which increased from 40.47% in 1990 to 46.33% in 1991 and from 46.33% to 59.80% in 1992. This presentations us tick Xs totality of debt congener to its assets is increasing and that its debt is equal to more than half of its assets by 1992. The real ratio an d quick ratio has similarly indicated negative reposition, some(prenominal) lessen between 1990 and 1992.The current ratio is a liquidity ratio that measures a companys ability to throw inadequate bourn obligations, while the quick ratio shows a companys ability to pay its unaw atomic number 18s- experimental condition obligations with its most liquid assets. Both ratios ar steadily decreasing, indicating to us the position of the company has become less(prenominal) and less favorable. The companys asset concern ratios similarly show decreasing numbers. The inventory derangement ratios have decreased as fountainhead as the total asset turnover. This explains the number of times a companys inventory is sold and replaced during a period. The companys days sales bang-up (ACP) also rose from 36.00 in 1990 to 53.99 in 1992.This shows us that Mark Xs average number of days to collect revenues by and by a sale has increased. This number is unfavorable because this means the companys interchange is tied up in accounts due for longer period. The hit margin ratio also fell from 5.50% in 1990 to 3.44% in 1991, and then from 3.44% to0.39% in 1992. This is a ratio of serviceability calculated as net income divided by revenues, showing us that the companys profitability has dropped substantially.Similarly, the gross profit margin and the croak on total assets has decreased over the past three years, the gross profit margin dropping from 19.48% in 1990 to 14.76% in 1992, and the return on total assets dropping from 16.82% in 1990 to 0.79% in 1992. This shows us the companys financial health has dec credit lined, and the proportion of money left over from revenues by and by accounting for bell of goods sold has decreased. The return on equity using the extended DuPont Equation shows how the roe was 28.26% in 1990, and quickly fell to 1.95% in 1992, well below the patience average.Looking at the information from 1990-1992, we feel that the border s hould not lend the pass on money to Mark X. Based on their datas ratio- digest the companies leverage and liquidity are both dropping. The liquidity ratios show that not only does Mark X have problems obtaining cash, but these problems have been get worse. Notice that their current assets consist of a precise high percentage of inventories. This will make the occupation of converting its current assets into cash in a terse period of time difficult. The leverage ratios show that their debt levels are not only extremely high, but they are only getting worse. Its TIE ratio is decreasing also showing that Mark Xs ability to pay interests is decreasing.The problems do not drive away there. Their efficiency ratios indicate that even though their fixed assets are increasingly being utilise to progress sales during 1990 and 1991, which is shown by their fixed asset turnover ratio, the decreasing total assets turnover ratio shows that Mark Xs total assets are not being efficiently u sed, so their overall asset management is becoming less efficient. Finally, their profitability ratios are showing that their ability to generate profit is decreasing. integrity of the major factors in the executable denial of the clean loan is the lack of payments on their get around term loans.Mark X could pay off their neat short-term loans by the end of 1993. The 1993 forecasted balance planing machine shows a cash balance of $35,874 (alldollar value in thousands). Their current neat short term patois loans are projected to be $24,608. anticipate that the company can survive on a cash balance of $11,266, it would be possible for Mark X to pay off all the short term debt by the end of the year. There is a potential that the bank could withdraw its line of citation and motivation immediate repayment of the two brisk loans. If that happens, Mark X has very limited plans of action.If the bank were to demand immediate payment of all heavy(p) loans, Mark X would have a re al mess on their hands. They would need to make payments of $18,233 for the short term debt and $9,563 for the long term debt. This means that Mark X would need to pay $27,796 within a period of 10 days. Their total ending cash at the end of the 1992 year is only $3,906 which would only be a fiddling chunk of the outstanding loans. The company now would be forced to demand payment from their accounts receivables which are valued at $29,357 and would insure the total of the loan. However, they would need to collect the entire amount in under 10 days to pay the bank back. If they do not succeed in obtaining the $27,796, their only other option is file for bankruptcy.The robustness of comparative ratio analysis could be considered uncertain in a couple of different situations. The beginning(a) thing is that there could be some intractable changes and the second is that the companies are not comparable in size. Large businesses have the advantage of economies of scale. For example , a bad company can have larger moolah per fixed asset because they have a untold larger market share than a small company that uses the same technology. You should also be careful comparing different years without taking the state of the economy into consideration. In recessions, it would not be smarting to compare the earnings per share to a old year before the recession. This may make it possible to lay blame on the wrong reasons and not properly evaluate the state of the company. The ratios should be used to measure areas that are controllable by them. In the situation of a recession, there is nothing that the company can do about it.The sensitivity analysis is a technique that indicates how much NPV will change in response to a imparted change in an input variable, other things heldconstant. We perform a sensitivity analysis to show how sensitive the results are to things such as the sales growth rate, the cost of goods sold percentage, and the administrative expense ra tio. If the results dont vary too much when a given variable is changed to a less favorable value, than the bank would have greater confidence in extending its line of credit.Based on the analyses, Karen should recommend the extension of the active short and long term loans and grant the superfluous $6,375,000. We feel the loan should be given because the projections show substantial improvement in many areas of the financial statements. Cash on hand in 1993 only if significantly increases about $32 million. Accounts payable and receivable both show improvements while the ratios continue to go back and regain strength. The Altman Z score of Mark X is projected to rise well above the industry average reducing their chances of bankruptcy.Contractual destinys for current, quick and debt ratios should be changed to require a higher standard of financial security for the bank. During the first quarter after the grant of additional funds, the bank should also continue the requirement of quarterly financial statements and continue to calculate the break ratios and the trends in these ratios to identify any deficiencies. If improvements arent shown after the 1993 appropriate measures will be taken by the bank.