Current assets exceeded fixed assets for 2012 this

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Current Assets exceeded fixed assets for 2012. This means that there is more cash, marketable securities, accounts receivable, and inventory on hand than the worth of the land, plant, equipment, and building. Fixed Asset Turnover has stayed steady over the last two years and is right around industry standard. Gross Profit Margin has not dropped as much as the other profitability ratios. It is currently at 14.76%, which is only down 3.06% from the previous year. The amount of gross profit needed to convert to sales has not significantly decreased for Golden Egg Corporation. The gross profit margin is below industry standard and is a cause for concern. Golden Egg’s weaknesses: Interest on short-term loans increased by twice in the previous year. This is a sign that there was a significant increase in short-term loans in the past year. The current ratio decreased from 2.74 (2011) to 1.79 (2012) and is below industry standard. This is showing that Golden Egg may have a hard time satisfying their short-term obligations. The quick ratio also decreased to .72 (2012) from 1.07 (2011), but is not too far below industry average. Without including inventory (least liquid of cash assets), Golden Egg’s ability to meet their short-term obligations is less than half of the current ratio. Inventory turnover (cost and sales) have decreased from 2012 to 2011 and are below industry average. This means that Golden Egg Corporation is taking longer to sell their inventory and the inventory that they have is being sold at a discount. The profitability ratios: profit margin, return on total assets and return on equity have all decreased significantly in the past two years and are all below industry average. Profit Margin is only at .58%, meaning that there is less than 1% in profits being generated after all taxes and expenses have occured. The debt ratio has increased to 59.59%, which is high and jumped above the industry standard. It looks like Golden Egg Corporation is financing more of their operations through debt in the past year. Return on Assets will be low because it is the product of the net profit margin (.58%) and total asset turnover (2.06%). Long-term debt, current liabilities, and stockholders equity influence the financial leverage multiplier, which could enhance earnings in a company. Low return on assets combined with no increase in long-term debt affects return on equity (2.95%). 3. After looking over Golden Egg Corporation’s common size balance sheet and income statement, along with the statement of cash flows, I do not recommending the bank extending the money requested. Even though Golden Egg Corporation had no increase in long-term debt and has been able to turn inventory, the profitability, activity and liquidity ratios are too low to see any potential for repayment. Seeing that the profit margin took a sharp decrease in the past two years and dove under the industry average is a huge concern.
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  • Spring '18
  • Felski
  • Balance Sheet, Financial Ratio, Generally Accepted Accounting Principles, golden egg

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