IT Project – Term Paper Example
IT project al Affiliation) Financial ratios Aspen Industries Financial ratiosFor the Year ended Dec. 31, 2013 and 2014
Financial ratios 2013 2014
Current ratio 0.90 1.84
Total Debt ratio 0.61 0.50
Debt ratio analysis
Debt ratio analysis is considered a solvency ratio that brings out the total liabilities of a firm as a percentage of the total assets that the firm has. In using this to make loan decision, it is used to show the assets that the company has that they are to sell in order to pay off the debts that they have (Bull, 2008). Debt ratio enables investors and also creditors to analyses the overall debt burden on the company that they operate as well as the ability of the firm to pay the debts that they have in future when the economic times are uncertain.
In the calculations, the formula used is debt ratio is given by =
The company that was choses has a debt ratio of 0.61 in 2013 and the ratio reduced to 0.50 in 2014. In loan consideration, companies that have high level of liabilities in their operation compared to assets are considered highly leveraged and these are more risky tom lenders.
I recommend the company for a loan as it is observed that their debt ratio has reduced over the period and this makes them be legible and are thought to be able to pay their debts.
Current ratio is an efficiency and liquidity ratio which, measures the ability of a firm to pay off its short-term liabilities with the assets that the firm has at the current. The current ratio is important in determining giving out loan to a company as it determines the liability that is due in the next year (Bull, 2008). Through this it will indicate that the firm has a limited time that they are needed to raise the funds in order to raise funds so that they pay off for their liabilities. Current assets which the company has such as cash and marketable securities can be easily converted to cash. In this analysis, it shows that companies that have large amounts of current assets will more easily be able to pay off the current liabilities when they become due without the need to selloff the long term assets.
The formula used in calculating the current asset is current ratio is given by =
In the company, the current ratio was found to increase from 0.90 to 1.84. This implies that there is an increase in current assets and a reduction in current liabilities. The firm hence becomes legible to be given a loan as there is increase in current assets that they are able to sell off in order to pay the loan that they are given after a given period of time.
In analysis that was carried out in the company, it was determined that the ratios that the firm has; debt ratio and current ratio makes the firm qualify to be given a loan as they will be able to pay the loan at the required time through the assets that they have.
Bull, R. (2008). Financial ratios. Oxford: CIMA.