FINA Strategic Plan

FINA Strategic Plan - 1 Financial Plan Great Cups Current...

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1 Financial Plan Great Cups Current Financial Analysis Created by: Jamie Hinson, Prodigy Consulting Liquidity Ratios Current Ratio 2006 2007 2008 2.90 1.97 2.06 Quick Ratio 2006 2007 2008 1.88 0.88 1.09 Operating Cash Flow 2006 2007 2008 0.82 1.39 0.92 Inventory / Net Working Capital 2006 2007 2008 0.09 0.11 0.12 The current liquidity ratios calculated above are for the years 2006 – 2008 for Great Cups of Coffee Company. These ratios are known as the most common liquidity ratios that are basically used in order to determine the amount of short term debts within a company. The higher the ratio, the margin of safety (or safety net) a company has in order to pay back its debts. The ratios show that Great Cups of Coffee Company have the ability to pay off their short-term debts with their current cash and assets comfortably with an average current ratio of 1.28. The quick ratio shows that Great
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2 Cups of Coffee Company can even cover their short-term debt obligations without even using their inventory as a marketable security. One thing that we would suggest for Great Cups of Coffee Company would be to maintain or increase the current and quick ratio levels, and also to decrease the cash holding time period such as promoting short sales (Appendix A-C). Leverage Ratios Debt-to-Asset 2006 2007 2008 21.92% 64.09% 61.71% Debt-to-Equity 2006 2007 2008 78.08% 35.91% 38.29% Current Liability / Equity 2006 2007 2008 11.34% 28.19% 32.44% Long-Term Debt / Capitalization 2006 2007 2008 66.67% 95.24% 97.92% Times Interest Earned 2006 2007 2008 13 times 16 times 12 times The above leverage ratios are calculated for Great Cups of Coffee Company over 2006 – 2008 years. These common types of leverage ratios are used to generate
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3 a company’s financial status/leverage in order to gain focus on their method of meeting financial debt obligations. The debt-to-asset ratio generates how much of Great Cups of Coffee Company’s assets are financed by its debt. The ratio increased dramatically from 2006 to 2007; however it has started to decrease in 2008. The higher the ratio, the higher the risk is for the company. The debt-to-equity ratio generates the amount that shareholders would receive in liquidation. The ratio has decreased dramatically since 2006, which means that the amounts of assets in which shareholders claim have decreased. The current liability to equity ratio has increased by about 21% over the past three years, which indicates that the investments have been poorly made. There have been too many inadequate investments chosen for Great Cups of Coffee Company over the past three years and things definitely need to be turned around before the financials get even worse. The Long-Term Debt to Capitalization Ratio is used to compare its available capital to its long-term debt. Great Cups of Coffee Company is currently at a very high level of risk as compared to 2006. Times Interest Earned Ratio (TIE) is used to calculate a company’s ability to meet any debts that they owe and were at its lowest in 2008 (Appendix A-C).
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FINA Strategic Plan - 1 Financial Plan Great Cups Current...

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