StudentShare solutions
Triangle menu

Debt and Equity Financing - Advantages and Disadvantages - Research Paper Example

Nobody downloaded yet

Extract of sample
Debt and Equity Financing - Advantages and Disadvantages

It is of great significance that the ratios must be benchmarked against a standard in order for them to possess a meaning. Keeping that into account, the comparison is usually conducted between companies portraying same business and financial risks, between industries and different time periods of the same company. The company under consideration is Marvel Toys, and in this report the analysis of the financial performance of the company over the last seven years has been conducted in order to draw attention to various financial trends and significant changes over the period. The analysis is divided into three main categories: namely Profitability, Liquidity and Gearing. Profitability ratios identify how efficiently and effectively a company is utilizing its resources and how successful it has been in generating a desired rate of return for its shareholders and investors. Liquidity ratios measure the ability of the company to quickly convert its asset into liquid cash to settle its short term liabilities. Whereas, the Gearing ratios identifies the extent to which the company is financed through debt and to what degree the operations are being conducted from the finance raised through raising equity capital or otherwise2. Following ratios have been used in order to evaluate the financial outlook of the company: Current ratio Acid-test (quick) ratio Collection period Inventory turnover Debt to total asset ratio Times interest earned Return on assets Return on Equity Fixed Asset turnover Total Asset turnover Gross Profit margin Net Profit Margin The profitability ratios of the company appear to be stable, but the company is facing liquidity problem as apparent from the ratios. Also, the company has more than 50% of its assets financed through debt. But the company has great earning potential based on which it has been decided to sanction the long term loan facility to the company. Answer to part A Financial Analysis Profitability Ratios   2011 2010 2009   Profitability Ratios Gross profit margin 20.18% 19.23% 20.14% Net profit margin 6.88% 6.15% 7.50% ROE 11.68% 12.20% 35.71% ROA 4.50% 4.36% 7.03% Fixed Asset Turnover (times) 2.04 2.27 2.53 Total Asset Turnover (times) 1.27 1.35 1.57 Gross profit margin is an analyzing tool which assists in identifying how effectively and efficiently the company is utilizing its raw materials, variable cost related to labor and fixed costs, such as rent and depreciation of property plant and equipment3. The ratio is calculated by dividing the sales revenue by the gross profit. The gross profit margin of the company was quite stable in the financial year 2009, but moving forward in the financial year 2010, the ratio has seemed to decline a bit. The decline in the ratio was primarily due to the decrease in the net sales of the company by 9% which caused the gross profit margin to decrease by around 0.91%. But the ratio appeared to show an inclining trend again the financial year 2011 as the company was able to curtail and manage its cost of sales although the quantum of its sales ...Show more


Financial Analysis of Marvel Toys Company Teacher Name: Contents Executive Summary 2 Answer to part A 4 Financial Analysis 4 Answer to Part B 10 Conclusion 12 Bibliography 15 Executive Summary Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity.1 The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility…
Author : bdietrich
Debt and Equity Financing - Advantages and Disadvantages essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the research paper on your topic
"Debt and Equity Financing - Advantages and Disadvantages"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Advantages and Disadvantages of International Economic Institutions

According to the research findings joining any economic institution can have both positive and negative consequences but the key is to be aware of these and work diplomatically to create win-win situations. Considering that EU has agreed to help Ireland in recovering from the recent financial crisis it appears important to remain a member of the EU.

10 pages (2500 words) Research Paper
Marks and Spencer is one of the leading and the most recognized name in the fashion industry
The operations of the company are widespread with global presence and footmark on more than 43 countries worldwide and the company houses employees worldwide which accounts to a staggering 81,000 individuals. The company’s main business consists in selling fabric items and clothing for men, women and kids’.
17 pages (4250 words) Research Paper
Financing Options: Newbe Expanding Business
In this letter, I have explained the financing requirements, which I consider crucial for you to understand before making you final decision. I have also presented the various financing options you may consider pursuing together with their advantages and disadvantages.
8 pages (2000 words) Research Paper
These requirements are generally met by means of short term sources of financing. Sources of short term funding Hire purchase It is an instalment credit where the hire purchaser or the hirer takes different goods on the basis of hire at a predetermined rental rate (including the principal as well as the interest amount the option of such purchase).
5 pages (1250 words) Research Paper
Business Financing and the Capital Structure
Cash flows allow estimating the depreciated value of assets owned by a company and further requirements to contribute in effective budgeting. Capital Asset Budgeting is also practiced commonly by corporations, which is however often criticized owing to its complexities and needs for continuous record-keeping (Oracle, 2008).
4 pages (1000 words) Research Paper
Advantages and Disadvantages of Globalization
A business definition of globalization is the process of enabling investment and financial markets to operate internationally following improved
6 pages (1500 words) Research Paper
Advantages and Disadvantages of EU
However, there has been divided opinion on the socio-economic gains of this economic integration entity. This can be addressed more easily by drawing the comparative analysis of the advantages and disadvantages. EU has
3 pages (750 words) Research Paper
Business Finance and the Capital Structure
Investing in equity financing dilute the controlling power of the owner of the company. Board of directors need to include the equity shareholders in the decision making process as they
3 pages (750 words) Research Paper
Advantages and Disadvantages of the European Union
However, the European Union has its downsides with the main demerits including a loss of sovereignty for member nations among others. The paper will provide a broader view of the
7 pages (1750 words) Research Paper
Corporate Income Taxes - Client Letter
cing for capital is the raising of money through selling of bills, notes and bonds to investors as well as borrowing money from a financial institution to use for capital expenditure. In return, the institutions become creditors and the corporation has to promise in writing to
2 pages (500 words) Research Paper
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us