**The Farm Winery Case SolutionÂ **

Profitability Ratios |
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Gross Margin Ratio |
35.0% | 45.9% | 31.1% |

Operating Profit Margin |
-400.9% | -14.0% | 8.4% |

Net Profit Margin |
-400.8% | -14.0% | 8.4% |

Return on Assets |
-7.9% | -1.6% | 1.9% |

Return on Equity |
-8.2% | -1.4% | 1.8% |

**Leverage Ratios**

**Debt Ratio**

The debt ratio of the company shows the companyâ€™s ability to pay off its liabilities by the use of its assets. The Debt ratio shows that the financial health of the company is strong. The ratio in the year 2011 had been 3.5%, which represents that in every 1 rupee of assets the company has 0.035 of liability obligation. Thus the companyâ€™s liquidity performance is very good. The ratio decreased further and in the year 2013 it is 1.8%.

**Cash Ratio**

Â Here the situation is extremely favorable. The company has handful of cash to pay off its current liabilities. At the year 2012 the ratio was abnormally high while in the year 2013 it becomes almost normal with 65.5%, but it is still quiet high. The company is able to pay off its 65.5% of current liabilities out of cash.

**Cost of Borrowing**

A company needs funds for every aspect of business and usually borrows funds when necessary. The cost of borrowing is the factor that affects the companyâ€™s ability to get funds. Here the only borrowing is through credit cards as the business is majorly funded by equity as the owners wants no dilution of control the cost of borrowing is quiet low or it is almost zero. This shows that company is totally funded by equity and it has sound financial health.

**Debt to equity ratio**

This shows how much debt has been involved in the capital structure of the company. Here the ratio is minor as well. Since the company is not using debt and borrowed funds, there is no proportion of debt in the financial structure. The ratio is although 3.6%, 0.4% and 1.9% but this is because the accounts payable is used in the calculation which is not a long term debt. Thus it can be said that there is no debt over equity for the company.

Leverage Ratios |
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Debt to Equity Ratio |
3.6% | 0.4% | 1.9% |

Debt Ratio |
3.5% | 0.4% | 1.8% |

Cash Ratio |
161.0% | 2787.0% | 65.5% |

Cost of borrowing |
0.1% | 1.3% | 0.0% |

**Liquidity ratios**

**Current Ratio**

Â For the company the ratio is in an upward trend suggesting healthy liquidity of the company. In 2012, the ratio was 256.21 that is unbelievable. But this is a trend in wine business. As the time passes and business gets acceleration the ratio normalized. The ratio becomes 49.98 in the year 2013. The company has assets of about $49.98 for every $1 of liabilities.

**Quick Ratio**

Quick ratio is same as the Current ratio, but here the inventory is excluded so that only highly liquid items are analyzed for current obligations. The ratio becomes quiet low and it can be seen from the Calculation. The inventory is the major asset for the company. As discussed earlier the company has to preserve and keep the wine inventory for aging thus the inventory is where most of the costs get stuck in the initial year of business. Thus eliminating the inventory, the ratio for the year 2013 is 2.42. The ratio is still favorable with the asset of $2.42 for every $1 of obligation.

Liquidity Ratios |
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Quick Ratios |
2.17 | 31.50 | 2.42 |

Current Ratio |
24.29 | 256.21 | 49.98 |

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