Debt and Equity Financing - Advantages and Disadvantages Research Paper

Debt and Equity Financing - Advantages and Disadvantages - explore Paper ExampleIt is of great significance that the dimensions must be benchmarked against a standard in govern 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 family. The go with under conside ration is Marvel Toys, and in this enunciate the analysis of the financial performance of the company over the last seven years has been conducted in rescript 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 ratio s measure the ability of the company to quickly switch its asset into liquid cash to settle its short term liabilities. Whereas, the Gearing ratios identifies the extent to which the company is financed by dint of debt and to what degree the operations are being conducted from the finance raised through raising equity working 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 plus turnover Total Asset turnover Gross Profit mete Net Profit brim The profitability ratios of the company appear to be durable, 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 base on which it has been decided to sanction the long term loan f acility to the company. Answer to part A Financial Analysis Profitability Ratios 2011 2010 2009 Profitability Ratios Gross profit beach 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 lug 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 some 0.91%. B ut 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