BLUNTLY MEDIA: A PRIVATE COMPANY VALUATION Case Solution

BLUNTLY MEDIA: A PRIVATE COMPANY VALUATION Case Solution

Liquidity

            Two key ratios have been computed for the company to analyze its liquidity position. First of all, the current ratio has been computed. The current ratio shows a declining trend for the company and in 2012 it was 0.99 times, which indicates that the short term obligations for Bluntly Media are more as compared to its short term assets. If the company faces a situation in which it has to repay its short term obligations then it will not be able to do so and face liquidity issues. The quick ratio could not be calculated for the company as the company has zero level of inventory. Lastly, the net working capital turnover ratio for the company also shows a declining trend and currently it is negative 0.08% which is quite alarming for the management of the company. The liquidity position of the company is weak, which might be due to inefficient working capital management policies of the company.

Profitability

            The profitability ratios for the company have also been computed. The gross margin ratio of the company is consistent with an average ratio near 15% in the past 4 years. The operating and net margins for the company are both the same due to the lower tax expense;this might be due to deferred tax assets. However, the trend of the operating margin and the net margin is not good and the current year ratio of 0.83% is quite low. Overall, we can say that the profitability position of the company is also weak and the management is not able to generate adequate margins on its sales of services. The net income for the company is also fluctuating however, the sales are increasing for the company.

Activity

            Three activity ratios have also been computed based on the historical financial statement of Bluntly Media. The total asset turnover ratio for the company is good with an average ratio of 8.89 in the past 4 years. This indicates that the company is using its assets efficiently to generate the revenue for the business. Similar is the case for the fixed asset turnover ratio which also shows that the fixed assets of the company are running efficiently and the business operations are smooth enough to sustain the sales growth of Bluntly Media. Finally, the accounts receivable turnover ratio has also been computed. This ratio also shows an increasing trend and it could be seen that management has an efficient accounts receivable collection policy in place. The current year accounts receivable turnover ratio is 11.16 times.

Financial Leverage

            The financial leverage position of the company has been assessed by calculating four key ratios. First of all, the total debt to total assets ratio has been computed. This shows that the company has a huge amount of debt. Since, this is a private company therefore, the company can finance its operations through a bank loan and accounts payable. The company has a higher level of current assets as well as current liabilities on its balance sheet which is evident by the low LTD to assets ratio. This indicates that the total debt of the company mainly comprises of short term obligations and LTD is a minute part of the total debt of the company.

            Moreover, the equity multiplier ratio has been computed for Bluntly Media. The equity multiplier ratio for the company shows an increasing trend and recently it increased significantly. The current year equity multiplier ratio for Bluntly Media is 120.12 times. This is quite an alarming situation for the management of Bluntly Media as the company is taking on additional debt each year to fund its asset purchases. Usually a lower equity multiplier ratio is more preferred.

            Finally, the time interest coverage ratio for the company has been computed which shows the ability of the company to repay its obligations. The current interest coverage ratio is 52.85 times however, this has declined significantly since the last four years. This might be due to the significant decline in the operating income of the company. The company might face issues in the future to pay interest on its long term debt…………………..

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BLUNTLY MEDIA: A PRIVATE COMPANY VALUATION Case Solution
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