Author Question: The following ratios have been calculated for Wholesale Appliances, Inc Analyze the capital ... (Read 97 times)

penza

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The following ratios have been calculated for Wholesale Appliances, Inc Analyze the capital structure and long-term solvency of Wholesale Appliances, Inc
 
  2015 2014
  Debt ratio ()
  77.8 90.3
  Long-term debt to total capital () 29.8 66.1
  Times interest earned (times) (2.0) (2.8)
  Cash interest coverage (times) 4.6 4.1
  Fixed charge coverage (times) (0.4) (1.0)
  Cash flow adequacy (times) 0.2 0.3
 
 
 What will be an ideal response?

Question 2

From the viewpoint of the buyer, a business form prepared by the seller that lists the items shipped, their cost, and the shipping terms is a(n)
 a. purchase requisition.
   b. COD statement.
   c. purchase order.
   d. sales requisition.
   e. invoice.



maya.nigrin17@yahoo.com

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Answer to Question 1

Wholesale Appliances has a risky capital structure, though it has improved from 2014 to 2015 . The significant decrease in debt appears to be largely a decline in long-term debt. The firm is operating at a loss which has caused the times interest earned and fixed charge coverage ratios to be negative. While the firm cannot cover fixed payments with profit, they can cover these items with cash. The cash interest coverage ratio is positive both years and has improved in 2015 . Cash flow adequacy is very low and has decreased from 0.3 to 0.2 . This indicates that the firm cannot cover capital expenditures, debt repayments and dividends with cash from operations. It is possible that the low cash flow adequacy ratio is a result of Wholesale Appliance paying down long-term debt in the current year which is a good thing. The firm should not be paying dividends given their lack of profits and high debt.

Answer to Question 2

e



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