DISCUSSION

For bankers to give a loan to end institution the institution must have ability to meet short term and long obligations . The profitability of the company must also be sound

The ratios calculated by the bank are grouped into four categories profitability ratios , long term and solvency , performance ratios liquidity ratios , activity ratios . To begin with the bank has highlighted two liquidity ratios currents ratio , and quick ratio . From the figures shown by the bank it shows that our company current ration is not stable it is coming down it changed from

2 .3 : 1 to 1 .7 :1 in last years to this years . The industrial average the current ratio was 2 :1 meaning that our company ability to meet current reliabilities reduced less than 2 :1 which is recommended ratio . Secondly in the two years it is less than the industrial average (White G .I , Sondhi A . C . and Fried D ,1997

Quick ratio wh9ich is show of the ability of the firm to meet current obligations with liquid assets also changed to a minimal of 0 .4 :1 from 0 .7 :1 and the industrial average is 0 .8 :1 . What it implies here is that for every dollar for current liability there is 0 .4 dollars of current assets . This means that the firm cannot be able to meet interest obligations from the bank loan , since that firm is overburdened . The quick ratio is considered for the purposes of paying quick current liabilities which may lead the firm to technical default (Gershon M and S . Ghon Rhee ,1984

On long term solvency of this firm the bank calculated debt ratio and debt to net worth ratio . The debt ratio for last year was 0 .81 :1 and this year is 0 .89 :1 while the industrial average was 0 .65 :1 this means that the company 's debt is increasing and it cannot meet reliabilities since for every 0 .81 debt there is 1 dollar available . This ratio shows how the capital structure and how long risk of the firm term is . It means that the firm has high debt sand the debts are increasing . The debt to net worth ratio shows debt to equity and in this case it is 2 .6 :1 for last year while for this year is 29 .1 , the industrial average is 1 .9 :1 this means that the company has more debt than other players in the industry meaning that the company is not able to compete with other on the fair ground . Should the company get other loan this ratio will increase meaning that the company 's long term solvency will be in jeopardy (Gershon M , and S . Ghon Rhee ,1984

On activity the firm calculated inventory tern over ratio and average collection period . These ratios measure the ability of the management to perform her duties as management efficiently . It is used to measure the ability of their firm to use the assets they have properly . The higher...