• April 3rd, 2016

Accounting and finance for managers

Paper, Order, or Assignment Requirements

Case study
GTD Limited has just incurred a large loss in 2014, rather than the expected profit. The managers, directors and investors are concerned about the firm’s survival. You have been brought in to assist the chairman of the company, as you have just completed your accounting module in an MBA class. The chairman has the task of getting the company into a sound financial position.
GTD’s 2013 and 2014 statements of financial position and income statements, together with projections for 2015 are shown in the tables given below. The tables show the 2013 and 2014 financial ratios, along with industry average data. The 2015 projected financial statement data represent you and the chairman’s best guess for 2015 results, assuming that some new financing is arranged to get the company in a good shape.

You must prepare critical analysis of where the company is now, what it must do to regain its financial health, and what actions should be
You are required to answer the following questions in an essay format (provide clear answers and not ‘yes’ or ‘no’).
1. Why are ratios useful? What three groups use ratio analysis and for what reasons?
2. Define and calculate the 2013, 2014 and 2015E current and quick ratios based on the balance sheets and income statements given. What can you say about the company’s liquidity position in 2013, 2014 and 2015E?
3. Calculate and define the 2013, 2014 and 2015E inventory turnover, days sales outstanding (DSO), fixed asset turnover, and total assets turnover. How does GTD’s utilisation of assets stack up against that of other firms in the industry?
4. Calculate and define the 2013, 2014 and 2015E, times-interest-earned and EBITDA coverage ratios. How does GTD compare with the industry with respect to financial leverage? What can you conclude from these ratios?
5. Define and calculate the 2013, 2014 and 2015E profit margin, basic earning power (BEP), return on assets (ROA) and return on equity (ROE). What can you say about these ratios?
6. Define and calculate the 2013, 2014 and 2015E price/earnings ratio, price/cash flow ratio and market/book ratio. Do these ratios indicate that the investors are expecting to have a high or low opinion of the company?
7. What are some of the potential problems and limitations of financial ratio analysis?
8. What are some of the qualitative factors that analysts should consider when evaluating a company’s likely future financial performance?

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