Smolira Golf Case Study Solution

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The financial ratios for Smolira golf corporation with the year ending figures rather than average values of year 2012. 1) Short term solvency: a) Current ratio = Current assets/ Current liabilities Year 2011 Year 2012 = 61,886/46,755 = 66,645/53,773 = 1.32 times = 1.24 times According to this, company have current assets more than 1(i.e. 1.32) as compare to the current liabilities in 2011 but it decreases in 2012 by 1.24 ratio. This is not good sign for management because higher ratio means strong position. b) Quick ratio = Current assets – inventory / current liabilities Year 2011…show more content…
It’s not too much higher because it is less than 1 so the company is safe but it’s a dangerous sign for management in future. Management should control the debt equity ratio. c) Equity multiplier = Total assets / total shareholder equity Year 2011 Year 2012 = 386,581 / 259,826 = 432,379 / 283,606 = 1.48 = 1.53 Equity multiplier shows that the only 1.53% of assets are financed by the shareholder or investors of company in 2012 and it higher than the ratio of 2011. This is positive sign for company because they are very less depended on debt of shareholders. The higher debts mean higher return in the form of dividends or…show more content…
In this ratio, we compare the net income (after interest and taxes) and net sales. This show that the Smorlia Golf Corporation only around 12% of sales into the net profit of the company. So, they should be increase the profit margin. b) Return on assets = Net income / total assets = 43,780 / 432,379 = 10.13% Return on assets shows that the company have 10.13% of profit which is composed by every asset. This ratio gives the view that in which way management use the assets of company for more profit margin. Higher return on assets means higher profitability in company. c) Return on equity = Net income / shareholder equity = 43,780 / 283,606 = 0.1543 or 15.44% Return on equity means that the company gets 15.44% net income from the stock of shareholders. This ratio is important for the investors. Higher return on assets means higher profitability’s. so, this company also have higher ratio and this is easily spreading in the market. This is also shows the proper utilization of investors

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