Microsoft Word peachtree case study
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| Leverage Ratios: Leverage ratios are used to measure a company’s ability to make payments on its debt obligations. This analysis uses the net fixed assets to net worth and total liabilities to net worth ratios. Highly‐leveraged businesses are generally more vulnerable to industry, economic, and business downturns than those with lower leverage. However, this must be reviewed in context with the particular industry being looked at. The net fixed asset to net worth ratio is calculated by dividing the net fixed assets by tangible net worth (i.e., excluding any recorded intangibles. The Company’s average ratio of 1.0 is higher than the industry average but still considered healthy, indicating low leverage. The total liabilities to net worth ratio is calculated by dividing the total liabilities by tangible net worth (i.e., excluding any recorded intangibles. The risk creditors assume when lending to companies can be attributed to higher debt to equity ratios. A lower debt to equity ratio generally indicates that a company is more financially sound. As previously discussed, the Company has very little debt and has no plans to change that pattern of operation. Over the past five years, the Company’s debt to equity ratio has ranged from 1.2 to 3.7, the last four years being between 1.2 and 1.4, in contrast to the industry average of 2.1. This analysis implies that there is capacity within the Company to take on modest additional debt if needed. Download 0.84 Mb. Share with your friends:
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