Financial Report for Custom Snowboards Inc Essay

Financial Report for impost Snowboards Inc - Essay ExampleAt present the company is funded with $750 of debt to $903.8 of equity representing a debt to equity symmetry of 0.83 or 83 cents of debt funding for every $1 of equity funding. Other considerations may consider the liquidity of the company, while many companies have a bulky business model and represent a good long full term investment, many fail simply due to an inability to meet short term cash flow needs (Brealey et al 2006). At present, the liquidity position of Custom Snowboards Inc would appear to be healthy with a current ratio of 6.12 and an unpleasant test of 3.91. The concern here on the behalf of the banking company may be that Custom Snowboards Inc is not actually making best use of its current assets, instead than a concern over the liquidity of the company at this stage (Arnold, 2007). Further issues which the bank may consider is the long term prospects of the company, here the bank may choose to analyse both various measures of net profitability as well as the underlying sales of the company which ultimately driver profitability. At present, the bank may highlight key concerns over both falling sales revenue and sharp falls in the operating and net profit margin. 2 In attempting to snub perceived levels of risk, Custom Snowboard Inc may undertake a number of measures Payback Debt As has been noted, at present the company may be seen as having too high a level of liquid assets, indicating that the company is not using its assets in an efficient way. One way to reduce the perceived risk of the company would be to use such assets to reduce the amount of debt the company has. This would have a double effect on the company, on the one hand, the debt to equity ratio would reduce, making the company a less risky proposition for investors from a capital structure perspective. In addition, the liquidity ratios would be reduced to what the literature (Arnold, 2007) defines a more reasonab le level. Overhead Reduction One of the issues for Custom Snowboards Inc has been that while sales have fallen in modern geezerhood, fixed overheads have remanded the same thus resulting in a falling gross profit margin and presenting investors with a profitability risk. In seeking to consultation the problem, Custom Snowboards Inc should begin a program of overhead rationalisation. Here the company should seek to undertake a signifi messt program of cost cutting with the direct of reducing overhead costs in line with the reduction in sales revenue seen. 3 In considering weather Custom Snowboards Inc is able to deliver back the principal and loan it may be prudent to analyse a number of key ratios and tends. At present the company is paying an amour charge of $75,000 per year, if the company were to take on an additional $1m of debt at 6.75% this would add an additional cost of $67,500 PA to the companys interest charges. Recent years have already seen key ratios declining wi th the net income ratio falling from 1.7% to 0.5%, and times interest earned reducing from 2.91 to 1.53. It is believed that by increasing the amount of debt in Custom Snowboard Incs capital structure and thus adding greater costs of financing, these key ratios will be reduced further thus questioning whether the company can afford the additional interest charges and principal payments. In considering the net income ratio and times interest earned, it should already be noted that in year 14, pass Sports outranked Custom Snowboard