Financial Analysis of a Company: Ratios and Losses

FINANCE
STUDENT ID:
[Pick the date]

Question 1
a) The net loss reported on page 37 could be attributed to the huge jump in one off costs on
account of the asset and footprint review that the company announced in the last month of
the financial year. This is clearly reflected in the jump in other expenses which for
FY2017 has increased to $ 355.8 million from the corresponding level of $ 4.9 million.
Also, the administration expenses jumped by almost 100% on account of these one-off
costs. Thus, the loss does not imply that the firm is underperforming.
b) The four ratios are as follows.
1) Current Ratio – This has been selected as this highlights the short term liquidity of the
position. A poor current ratio typically indicates that the company may be facing short
term cash crunch (Damodaran, 2015).
Current Ratio (FY 2017) = Current Assets/Current Liabilities = 782840/456305 = 1.72
The above current ratio is quite healthy and implies that the company is in a healthy
position to meet the outstanding short term liabilities. Clearly, the loss does not pose any
threat to the liquidity of the company in the short run as captured by current ratio
(Northington, 2015).
2) Debt Ratio - This is an indication of the long term solvency risk of the company.
Typically, a lower debt ratio would imply that the balance sheet is less leveraged which
augers well for the financial position of the company as it reduces the default risk (Petty,
et. al., 2015).
Debt Ratio (FY2017) = Total Liabilities/Total Assets = 940218/1675609 =0.56
The debt ratio of the company seems comfortable considering the business that the
company operates in. The long term solvency does not seem a problem based on the above
dent ratio. Thus, the given loss does not pose risks to long term solvency for the company
(Damodaran, 2015).
3) Inventory Turnover – This reflects the ability of the company to convert the inventory into
sales. This is an imperative ratio highlighting the efficiency for a manufacturing company.
High inventory on the books does not auger well for the company (Brealey, Myers and
Allen, 2014).