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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

Divide earnings before interest and taxes (EBIT) by interest expense to get the time interest earned ratio. The time interest earned ratio indicates how many times the interest expense is covered by the company’s operating income. As a result, the firm’s time interest generated grew from 2012 to 2013, indicating that the company was able to raise its operating revenue by making efficient and productive use of its management and operations. The amount of time interest earned by the corporation has climbed from 34 to 50, which is a good indicator.

Profit Margins

The net income margin, gross profit margin, and operating profit margins all contribute to the company’s profit margin. The margins can be expanded for two reasons: either the company’s revenues have increased, or the company’s cost of goods sold or operating costs has decreased. In the current circumstance, the firm’s whole margins have inclined due to a rise in sales, which is a great indicator for the company because revenue has inclined as the industry’s wider acceptance of their product.

Basic Earning Power

Dividing operational profit by the company’s total assets, the basic earning power is computed. This ratio shows how effectively a company’s total assets are being used to generate profit. As a result, the company’s basic earning power increased from the previous year, from 0.18 to 3.83, indicating that the company’s basic earning power has improved.

Return on Assets

Divide net income by the total assets of the company to get the return on assets. This ratio indicates how effectively the company manages its assets to generate profit or how effectively the assets are used by the company to generate net income. Furthermore, the company’s return on asset has grown from 0.22 to 0.29, indicating that the assets are being employed effectively to generate net income.

Return on Equity

Divide net income by total stockholders’ equity to get the return on equity. Return on equity is a measure of how well a corporation uses its stockholders’ money to make money. As a result, the company’s return on equity has decreased from 0.22 to 0.29, but its net income has increased. This data shows that the company’s stockholders’ equity has increased in comparison to its net income.

1) Common Size Analysis

On the balance sheet and income statement of the company, the company’s common size analysis is performed. The balance sheet’s common size analysis is done by dividing all of the balance sheet’s components by the total assets component of the balance sheet, whereas the income statement’s common size analysis is done by dividing all of the income statement’s components by the company’s revenue. However, it has been determined that the company’s accounts receivable decreased from 2012 to 2013, indicating that the company is effectively managing its accounts receivable collection. Furthermore, the company’s fixed assets have risen from the previous year, indicating that the company is doing well.

The examination of the income statement through the firm’s common size analysis assists the company in determining the various components of the income statement. It has been established that the company’s cost of goods sold and operational costs have decreased over the previous year, resulting in an increase to the company’s earnings. Furthermore, the company’s earnings have increased due to a gain in revenue as well as a fall in overall costs, as shown by the common size income statement.

Conclusion

Lady M Confection Company’s financial ratio analysis and common size analysis provide information on the company’s financial strength and growth of different components. However, it has been determined that the company has improved its performance and profitability in comparison to previous year. As a result of the full study of the company above analysis produced a comprehensive image of the company based on its financial and operational management operations…..

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