Macadams Case Study
Macadams Case Study
Gearing Ratios 1994 1995 1996
Debt Ratio 25% 9% 12%
Debt Equity Ratio 51% 16% 23%
Debt to EBITDA 1.49 0.32 0.41
Interest Cover 3.54 8.01 8.22
Liquidity Ratios 1994 1995 1996
Current Ratio 3.23 2.65 2.48
Quick Ratio 1.31 1.02 1.16
Acid Test Ratio 1.31 1.02 1.16
Profitability Ratios 1994 1995 1996
EBITDA margin 8.5% 11.9% 15.9%
Operating margin 7.2% 10.8% 14.9%
Net Profit margin 4.9% 7.4% 8.5%
Return on Total Assets 9.9% 19% 21.4%
Return on Equity 22.1% 36% 39.7%
Du – Pont Analysis 1994 1995 1996
Net Profit/Sales 4.9% 7.4% 8.5%
Sales/Assets 1.96 2.37 1.89
Assets/Equity 2.08 1.76 1.90
Efficiency Ratios 1994 1995 1996
Inventory on hand (days) 98 85 90
Collection Period (days) 66 53 77
Credit Terms (days) 48 43 51
Net Working Capital 116 95 116
Total Asset Turnover 1.96 2.37 1.89
Fixed Asset Turnover 16.55 23.58 14.71
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
Gearing Ratios 1994 1995 1996
Debt Ratio 25% 9% 12%
Debt Equity Ratio 51% 16% 23%
Debt to EBITDA 1.49 0.32 0.41
Interest Cover 3.54 8.01 8.22
Liquidity Ratios 1994 1995 1996
Current Ratio 3.23 2.65 2.48
Quick Ratio 1.31 1.02 1.16
Acid Test Ratio 1.31 1.02 1.16
Profitability Ratios 1994 1995 1996
EBITDA margin 8.5% 11.9% 15.9%
Operating margin 7.2% 10.8% 14.9%
Net Profit margin 4.9% 7.4% 8.5%
Return on Total Assets 9.9% 19% 21.4%
Return on Equity 22.1% 36% 39.7%
Du – Pont Analysis 1994 1995 1996
Net Profit/Sales 4.9% 7.4% 8.5%
Sales/Assets 1.96 2.37 1.89
Assets/Equity 2.08 1.76 1.90
Efficiency Ratios 1994 1995 1996
Inventory on hand (days) 98 85 90
Collection Period (days) 66 53 77
Credit Terms (days) 48 43 51
Net Working Capital 116 95 116
Total Asset Turnover 1.96 2.37 1.89
Fixed Asset Turnover 16.55 23.58 14.71
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