Question

Can you comment on the firms performamnce based on this Blance sheet. What are the key areas of concern

Balance Sheet	YR 1	YR 2	YR 3	YR 4	YR 5
Total Current Assets	1,500,000	1,700,000	1,787,500	1,979,000	2,200,300
Total Non Current assets	4,200,600	4,327,100	4,568,000	4,208,000	4,302,000
Current Liabilities	2,300,800	2,779,800	2,350,300	2,523,900	3,300,900
Non Current Liabilities	2,459,000	2,300,200	2,433,700	2,550,500	2,612,400
Share Holders Equity	1,020,800	899,000	1,573,000	1,095,000	618,900

Answer 1

Balance Sheet	YR 1	YR 2	YR 3	YR 4	YR 5
Total Current Assets A	15,00,000	17,00,000	17,87,500	19,79,000	22,00,300
Total Non Current assets B	42,00,600	43,27,100	45,68,000	42,08,000	43,02,000
Current Liabilities C	23,00,800	27,79,800	23,50,300	25,23,900	33,00,900
Non Current Liabilities D	24,59,000	23,00,200	24,33,700	25,50,500	26,12,400
Share Holders Equity E	10,20,800	8,99,000	15,73,000	10,95,000	6,18,900
Current Ratio (A/C)	0.65	0.61	0.76	0.78	0.67
Debt (A+B-E) (F)	46,79,800	51,28,100	47,82,500	50,92,000	58,83,400
Debt to Equity Ratio (F/E)	4.58	5.70	3.04	4.65	9.51
Asset to Equity Ratio (A+B)/E	5.58	6.70	4.04	5.65	10.51
Asset to Debt Ratio (A+B)/F	1.22	1.18	1.33	1.22	1.11

The current ratio has been computed to find out whether the company maintains enough current assets to settle its current liabilities. An ideal current ratio is one or greater than one to ensure that a company maintains more current assets than its current liabilities. From the above table, it is clear that the current ratio rose in years 4 and 5 before declining in year 5.

The debt has been computed by deducting the equity value from the total assets. After that when the debt has been divided by equity to calculate the debt to equity ratio it can be seen that the ratio rose in year 2 followed by a decline in year 3 and successive growths in years 4 and 5 as the company has resorted to higher debt levels.

The asset to equity and asset to debt ratios have been derived to understand the proportion of assets financed by equity and debt respectively. From the ratios, it is evident that a higher proportion of the assets have been financed with equity compared to debt.