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The Valuation & Financing of Lady M Confections Case Solution & Answer

The Valuation & Financing of Lady M Confections

Time Interest Earned Ratio

The time interest earned ratio presents data so how much much time the interest expenditure is paid through operating income earned through the company. Hence, the time interest earned of the enterprise has multiplied beside the duration of 2012 according to 2013 which indicates that the company has managed to increase its operating income through efficient and productive use of its management and operations. The company’s time interest earned has increased from 34 times to 50 times which is a plus sign for the company.

Profit Margins

The profit margin of the company includes net income margin, gross profit margin, and operating profit margins. The margins can be increased due to 2 factors which involve either the revenues of the company have increased or the cost of goods sold or the operating expense of the company has declined. In the current scenario, the company’s entire margins are inclined due to the increase in revenue which is considered as a plus sign for the company as the revenue has inclined as the wider acceptance of their product within the industry.

Basic Earning Power

This ratio provides information that how efficiently the company is utilizing its total assets in generating profit for the company. Hence, the basic earning power of the company has increased from the previous year i.e. from 0.18 to 3.83 which provides evidence that the company’s basic earning power has increased as compared to the previous year.

Return on Assets

This ratio indicates how efficiently the company is managing its assets in generating profit for the company or how efficiently the assets are being used by the company to generate the net income. Moreover, the return on assets of the company has increased from 0.22 to 0.29 which provides evidence that the assets are being used efficiently by the company to generate the net income for the company.

Return on Equity

Return on equity provides evidence of how the company is using stockholder’s equity in generating profit for the company. Hence, the return on equity for the company has declined from 0.22 to 0.29 but the net income of the company has inclined. This information indicates that the company stockholder’s equity has increased in comparison with the net income of the company.

1) Common Size Analysis

The common size analysis of the company is evaluated on the balance sheet and the income statement of the company. The commons size analysis of the balance sheet is calculated by dividing all the figures of the balance sheet from the total assets of the balance sheet, although the common size analysis of the income statement is calculated by dividing all the figures of the income statement through the revenue of the company. Even so, it is analyzed that the accounts receivable of the company have declined from the year 2012 to 2013, which indicates that the company is managing its collection of accounts receivable efficiently. Moreover, the fixed assets of the company increased from the previous year which provides evidence that the company has invested in fixed assets. The short-term loan of the company has declined but the long-term loan of the company has inclined in comparison to the previous years. Moreover, the total stockholder’s equity of the company is also increased which provides that the company’s equity size has increased. Hence, all these signs of the common size balance sheet analysis appear to be positive for the company.

The common size analysis of the income statement to determine the several components of the income statement of the company. It is determined that the cost of goods sold and the operational cost of the company have declined from the previous year which provided a boost to the earnings of the company. Moreover, it is also analyzed through the common size income statement of the company that earning of the company has inclined due to the increase in revenue as well as the decrease in overall costs of the company.

Conclusion

The financial ratio analysis and common size analysis regarding Lady M Confection Company provide records regarding the monetary strength and the increase of various components of the company. However, such is analyzed that the organization has managed to decorate its performance into comparison after the preceding years yet the profitability of the business enterprise has willing as much in contrast according to the previous year. Hence, the evaluation furnished the comprehensive image of the enterprise in accordance according to its economic and operational management activities to do which are calculated comprehensive analysis of the organization…..

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