Macadams Case Study Free Essay, Term Paper and Book Report
To analyse the financial position of the company, the above ratios' were analysed as follows:
Gearing and Liquidity Ratios
The debt ratio has increased from 9% - 12%. This is represented by an increase in both long term and short term debt. The long term debt increased by 140.7%.
This increase was necessitated by the fact that Macadams had embarked on an acquisition spree and required this funding to acquire Livanos Brothers in February 1996, as well as to fund the investment in new factories, land and distribution warehouses across the country.
The short term debt had increased by 229%. This increase would have been necessary to fund their working capital obligations, as short term debt is significantly more expensive to service than long term debt.
Despite the massive increase in debt, the interest cover ratio is still healthy. This however, is not a cash based ratio and gives us no indication as to whether the company is able to make its cash payments to service the increased quantities of debt.
The current ratio and quick ratio gives us an indication of the company's abi......
Word Count: 932
Page Count: 3.7 (250 words a page / double spaced)
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