Abington Hill Toys Essay
Finance 301
September 15, 2011
CASE 1 ABINGTON-HILL TOYS, INC. INTRODUCTION
In the case of Abington-Hill Toys, Inc., Vernon Albright assumed the position of the president of the firm following the death of the Lewis Hill, the last of the original founders. During the last years of Mr. Hill’s control of the firm, the financial condition of the company had deteriorated.
In order to investigate the financial condition of the firm, the new president hired a company comptroller who was experienced in budgetary procedures. The previous comptroller duties had been handled by Mr. Hill with the assistance of the company’s former chief accountant, Jerald Cohen. As a result of poor prior management and incompetence, the firm was unable …show more content…
to maintain financial health to a substantial degree.
METHODOLOGY
In order to evaluate the financial condition of the firm, a series of calculations have been constructed.
These calculations are the: * Current Ratio * Quick Ratio/Acid-Test Ratio * Inventory Turnover Ratio * Fixed Asset Turnover Ratio * Total Asset Turnover Ratio * Debt Ratio * Times Interest Earned Ratio * Gross Profit Margin Ratio * Net Profit Margin * Return on Total Assets Ratio * Return on Net Worth Ratio * And the Z-Score Ratio.
SOLUTIONS
In the order as presented under methodology, I have solved the series of calculations for evaluating the fiscal condition of the firm Abington-Hill Toys, Inc.
The solutions of the calculations follow the same order as presented under the methodology briefing: * Current Ratio = Current Assets / Current Liabilities = .9665 * Quick Ratio/Acid-Test Ratio = (Current Assets – Inventories) / Current Liabilities = .4482 * Inventory Turnover Ratio = Cost of Goods Sold / Inventory = 6.00x * Fixed Asset Turnover Ratio = Sales / Net Fixed Assets = 1.34x * Total Asset Turnover = Sales / Total Assets = 1.00x * Debt Ratio = Total Debt / Total Assets = .4083 * Times Interest Earned = Earnings Before Income and Taxes (E.B.I.T.) / Interest Charges = 3.18x * Gross Profit Margin = Gross Profit / Sales = .2500 * Net Profit Margin = Net Profit / Sales = .0504 * Return on Total Assets = Net Income / Total Assets = .0504 * Return on Net Worth = Net Income / Book Value Equity = .3024 * Z-Score Ratio = Z = 1.2X1 + 1.4X2 +3.3X3 + 0.6X4 + 1X5 = 1.775
Where X1 = Working Capital / Total Assets
Where X2 =Retained Earnings / Total Assets
Where X3 = E.B.I.T / Total Assets
Where X4 =Market Value of Preferred and Common Stock / Total Liability
Where X5 = Sales / Total Assets
CONCLUSIONS
After reviewing the financial analysis of the firm, the condition of the firm became clear.
The current ratio liquidity result of .9665 indicates the firm may have difficulty meeting its current obligations to debt holders.
The acid-test ratio analysis result of .4482 indicated weakness in the firm’s ability to use its quick assets to retire its current liabilities.
The Inventory Turnover Analysis for the firm slightly exceeded the industry ratio, referencing the possibility that the firm may have inadequate inventory levels.
The Fixed Asset Turnover ratio of 1.34 was less than the industry average. The ratio suggests that the firm may be over-invested in plant, equipment and other fixed assets.
The Total Asset Turnover ratio of 1.00 indicated the firm may be weak with regards to selling their inventory fast enough, which in turn punishes the company’s sales.
The Debt ratio analysis of the firm was .4083. This elevated statistic associates the firm with a greater borrowing …show more content…
risk.
The Times Interest Earned ratio for the firm is 3.18 times. This indicates the firm does have some measure of being able to make payments on its interest charges.
The Gross Profit Margin of .2500 fell in line with the so-called industry average but fails to impress any strategic ability of the firm.
The Net Profit Margin of .0504 demonstrated that the firm has difficulty converting sales to profits less the expenses. The efficiency of the company is suspect.
The Return on Total Assets ratio of .0504 indicated that firm has a weak ability in getting its assets to generate revenue.
The Return on Net Worth ratio of .3024 shows the company does have the ability to grow quickly.
The final Z-Score ratio analysis of 1.775 indicated the firm was highly likely to enter bankruptcy within two years.
The financial analysis of this firm is a negative outlook. I would advise against lending money to Abington-Hill Toys, Inc.
SUMMARIZE
After reviewing the financial condition of the firm, it is evident that the firm has been under horrible management over the previous years, and is not worth direct investment. The firm does have the ability to generate growth as evidenced by the return on total assets ratio. However, the firm’s ability to grow is overshadowed by the debt risk the firm is burdened
with.
The firm’s growing liabilities threaten its ability for positive grow. Among the greatest of its liabilities is the firm’s ability to deal with its inventories. According to the inventory analysis, the inventory levels of the firm must be investigated in order to demonstrate whether or not fraud has been affecting the firm’s ability to perform.
The firm’s inability to control its liquidity weakens its ability to demonstrate that it can finance its own debt. The Altman Z-score analysis supports these findings. The firm has a z-score of 1.775 and is likely to enter bankruptcy within the next two years.
As a result of these factors, I would not lend the firm money.
September 15, 2011
CASE 1 ABINGTON-HILL TOYS, INC. INTRODUCTION
In the case of Abington-Hill Toys, Inc., Vernon Albright assumed the position of the president of the firm following the death of the Lewis Hill, the last of the original founders. During the last years of Mr. Hill’s control of the firm, the financial condition of the company had deteriorated.
In order to investigate the financial condition of the firm, the new president hired a company comptroller who was experienced in budgetary procedures. The previous comptroller duties had been handled by Mr. Hill with the assistance of the company’s former chief accountant, Jerald Cohen. As a result of poor prior management and incompetence, the firm was unable …show more content…
to maintain financial health to a substantial degree.
METHODOLOGY
In order to evaluate the financial condition of the firm, a series of calculations have been constructed.
These calculations are the: * Current Ratio * Quick Ratio/Acid-Test Ratio * Inventory Turnover Ratio * Fixed Asset Turnover Ratio * Total Asset Turnover Ratio * Debt Ratio * Times Interest Earned Ratio * Gross Profit Margin Ratio * Net Profit Margin * Return on Total Assets Ratio * Return on Net Worth Ratio * And the Z-Score Ratio.
SOLUTIONS
In the order as presented under methodology, I have solved the series of calculations for evaluating the fiscal condition of the firm Abington-Hill Toys, Inc.
The solutions of the calculations follow the same order as presented under the methodology briefing: * Current Ratio = Current Assets / Current Liabilities = .9665 * Quick Ratio/Acid-Test Ratio = (Current Assets – Inventories) / Current Liabilities = .4482 * Inventory Turnover Ratio = Cost of Goods Sold / Inventory = 6.00x * Fixed Asset Turnover Ratio = Sales / Net Fixed Assets = 1.34x * Total Asset Turnover = Sales / Total Assets = 1.00x * Debt Ratio = Total Debt / Total Assets = .4083 * Times Interest Earned = Earnings Before Income and Taxes (E.B.I.T.) / Interest Charges = 3.18x * Gross Profit Margin = Gross Profit / Sales = .2500 * Net Profit Margin = Net Profit / Sales = .0504 * Return on Total Assets = Net Income / Total Assets = .0504 * Return on Net Worth = Net Income / Book Value Equity = .3024 * Z-Score Ratio = Z = 1.2X1 + 1.4X2 +3.3X3 + 0.6X4 + 1X5 = 1.775
Where X1 = Working Capital / Total Assets
Where X2 =Retained Earnings / Total Assets
Where X3 = E.B.I.T / Total Assets
Where X4 =Market Value of Preferred and Common Stock / Total Liability
Where X5 = Sales / Total Assets
CONCLUSIONS
After reviewing the financial analysis of the firm, the condition of the firm became clear.
The current ratio liquidity result of .9665 indicates the firm may have difficulty meeting its current obligations to debt holders.
The acid-test ratio analysis result of .4482 indicated weakness in the firm’s ability to use its quick assets to retire its current liabilities.
The Inventory Turnover Analysis for the firm slightly exceeded the industry ratio, referencing the possibility that the firm may have inadequate inventory levels.
The Fixed Asset Turnover ratio of 1.34 was less than the industry average. The ratio suggests that the firm may be over-invested in plant, equipment and other fixed assets.
The Total Asset Turnover ratio of 1.00 indicated the firm may be weak with regards to selling their inventory fast enough, which in turn punishes the company’s sales.
The Debt ratio analysis of the firm was .4083. This elevated statistic associates the firm with a greater borrowing …show more content…
risk.
The Times Interest Earned ratio for the firm is 3.18 times. This indicates the firm does have some measure of being able to make payments on its interest charges.
The Gross Profit Margin of .2500 fell in line with the so-called industry average but fails to impress any strategic ability of the firm.
The Net Profit Margin of .0504 demonstrated that the firm has difficulty converting sales to profits less the expenses. The efficiency of the company is suspect.
The Return on Total Assets ratio of .0504 indicated that firm has a weak ability in getting its assets to generate revenue.
The Return on Net Worth ratio of .3024 shows the company does have the ability to grow quickly.
The final Z-Score ratio analysis of 1.775 indicated the firm was highly likely to enter bankruptcy within two years.
The financial analysis of this firm is a negative outlook. I would advise against lending money to Abington-Hill Toys, Inc.
SUMMARIZE
After reviewing the financial condition of the firm, it is evident that the firm has been under horrible management over the previous years, and is not worth direct investment. The firm does have the ability to generate growth as evidenced by the return on total assets ratio. However, the firm’s ability to grow is overshadowed by the debt risk the firm is burdened
with.
The firm’s growing liabilities threaten its ability for positive grow. Among the greatest of its liabilities is the firm’s ability to deal with its inventories. According to the inventory analysis, the inventory levels of the firm must be investigated in order to demonstrate whether or not fraud has been affecting the firm’s ability to perform.
The firm’s inability to control its liquidity weakens its ability to demonstrate that it can finance its own debt. The Altman Z-score analysis supports these findings. The firm has a z-score of 1.775 and is likely to enter bankruptcy within the next two years.
As a result of these factors, I would not lend the firm money.