Analysis of Capital structure - Cash Converters Limited

This document provides an analysis of the capital structure of Cash Converters Limited, including the debt to equity ratio, debt cover ratio, and times interest earned ratio. It also discusses the overall analysis of the company's capital structure and suggests areas for improvement.

Analysis of Capital structure
CASH CONVERTERS LIMITED

Contents
Part 2 Capital structure................................................................................................................................3
Debt to Equity ratio.....................................................................................................................................3
Debt cover ratio...........................................................................................................................................4
Times interest earned ratio..........................................................................................................................4
Overall analysis............................................................................................................................................5
References...................................................................................................................................................6

Part 2 Capital structure
The below table represents the information of the company namely, Cash Converters Limited for
the period of the 2017 as well as 2018 to determine the capital structure of the company. The
capital structure is the way how firm finances the overall operations of the business. the capital
structure is classified as the mixture of the debt and equity.
Cash Converters 2017 2018
Debt to equity
ratio
Debt 0.53 0.58
Equity
Debt cover ratio
Non-current
Liabilities 1.46 -0.96
Net cash flow
from operating
activities
Interest
coverage ratio
EBIT 3.00 2.89
Interest expense
Debt to Equity ratio
In simpler terms the debt to equity ratio determines the composition and the proportion of the
debt and equity the company has used to finance the business. The debt to equity ratio signifies
the value by separating the value of all the liabilities and dividing it by the value of the total
equity. These numbers are accessible on the monetary record of an organization's fiscal
summaries. The major reason why this ratio is calculated is because it helps in the assessment of
the monetary as well the financial position of the company. it is used as the measurement by

most of the corporates in order to identify the capacity of the company, to cover the obligation on
account of the investments made.
The current debt to equity ratio of the Cash Converters Limited is 0.53 whereas in comparison to
the year 2017, it was 0.56. From the statement of the financial position it can be analyzed that the
borrowings have been paid off and therefore there is a reduction in the debt to equity ratio
(Campbell, Galpin and Johnson, 2016).
Debt cover ratio
The debt to cover ratio indicates the proportion of the non-current liabilities along with the net
cash flows from operating activities. The non-current liabilities have been decreased from 63351
to 20847 whereas the net cash flow from operating activities were positive at 43534 in the year
2017 and the same has tuned to negative at 21549 due to huge payments made by the company
(Misund, 2017).
Times interest earned ratio
Times interest coverage ratio also known as the interest cover ratio is the ratio which indicates
the ability of the company to pay back to the creditors, banks as well as financial institutions
from whom the funds were taken. The funds are generally acquired to operate the business. The
interest cover ratio of the company is 3 in the year 2017, whereas the ratio in the year 2018 was
2.89 which means though the long term borrowings have been settled the finance costs have been
increased. This indicates probably the underlying liability has yet not cleared and the company is
financing more from the liabilities (Du, Tepper and Verdelhan, 2018).

Overall analysis
Form the entire analysis it can be concluded that the Cash Converters Limited needs immediate
attention for improvement in the capital structure to avoid any further losses to the company. the
potential reasons have been mentioned above and the company needs to take care od them.

References
Campbell, T.C., Galpin, N. and Johnson, S.A., 2016. Optimal inside debt compensation and the
value of equity and debt. Journal of Financial Economics, 119(2), pp.336-352.
Du, W., Tepper, A. and Verdelhan, A., 2018. Deviations from covered interest rate parity. The
Journal of Finance, 73(3), pp.915-957.
Misund, B., 2017. Financial ratios and prediction on corporate bankruptcy in the Atlantic salmon
industry. Aquaculture economics & management, 21(2), pp.241-260.