assessment of the firm's solvency and leverage. Be as complete as possible given the above information

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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PROJECT:

You have been hired as an analyst for Metro Bank and your team is working on an independent assessment of Korsiney’s Food Inc. (KF Inc.) KF Inc. is a firm that specializes in the production of freshly imported farm products from France.  Your assistant has provided you with the following data for Flipper Inc and their industry.


Ratio


1999


1998


1997

1999-

Industry Average

Long-term debt

0.45

0.40

0.35

0.35

Inventory Turnover

62.65

42.42

32.25

53.25

Depreciation/Total Assets

0.25

0.014

0.018

0.015

Days’ sales in receivables

113

98

94

130.25

Debt to Equity

0.75

0.85

0.90

0.88

Profit Margin

0.082

0.07

0.06

0.075

Total Asset Turnover

0.54

0.65

0.70

0.40

Quick Ratio

1.028

1.03

1.029

1.031

Current Ratio

1.33

1.21

1.15

1.25

Times Interest Earned

0.9

4.375

4.45

4.65

Equity Multiplier

1.75

1.85

1.90

1.88

 

  1. You are asked to provide the shareholders with an assessment of the firm's solvency and leverage. Be as complete as possible given the above information, but do not use any irrelevant information. Discuss its ability to pay interest.

 

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