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Solution Question#1

Total Debt Ratio

Total Debt Ratio = Total Assets – Total Equity / Total Assets

                             

The above ratios shows that in 2009 crescent textile mills used 79 % debts and in 2010 the ratio reduced at 76% ,that shows the company’s financial position is strong in 2010.

 Debt-Equity Ratio

Debt-Equity Ratio = Total Debts / Total Equity

In 2009 total debt ratio off the company is 79%,and in 2010 total debt ratio is 76% and, that clearly shows that debt are 3% less as compared to previous year.                                                          

 Times Interest Earned (TIE) Ratio

Times Interest Earned (TIE) Ratio       = Earning Before Interest &Tax / Inters

Times Interest Earned (TIE) Ratio of crescent textile is very low and a warning sign for the company. But in 2010 ratio increased as compared to year 2009,

Time Series Analysis

Time series analysis and solvency measures clearly show that in 2010 the crescent textile mill is in better financial position as compared to year 2009.

Solution Question#2

Current Ratio=   Current Assets / Current Liabilities

Current ratio shows the ability of paying short term liabilities of the company, that’s mean as per above figures both companies financial condition is not good, but Kohinoor Textile Mill is in better position as compared to Crescent Textile Mill.

Quick Ratio (Acid-test Ratio)

Quick Ratio (Acid-test Ratio) = (Current Assets – Inventory) / Current Liabilities

This ratio refers to company’s ability to meet its shot term obligations with its liquid assets, if the ratio is at higher side that’s mean company is in good condition. As per above status both companies are not in good position.

Cash Ratio

Cash Ratio            = Cash / Current Liabilities       

If a company have cash ratio 1.00 the company is in an ideal condition to pay of its all current liabilities in immediate shot term. The above scenario clearly shows that both companies are at negative net working capital.

Overall both companies’ financial health is not up to the mark, but comparatively KTM is in better position.

                                          

Q 1:

“Time-series Analysis” of solvency measures
a) Crescent Textile Mills
Total Debt Ratio = (Total Assets – Total Equity)/ Total Asset
Debt-Equity Ratio = Total Debt / Total Equity
Times Interest Earned (TIE) Ratio = Earnings before Interest & Taxes/Interest
b) Kohinoor Textile Mills
Total Debt Ratio = (Total Assets – Total Equity)/ Total Asset
Debt-Equity Ratio = Total Debt / Total Equity
Times Interest Earned (TIE) Ratio = Earnings before Interest & Taxes/Interest

Q 2:

“Cross company Analysis” of liquidity measures
a) Crescent Textile Mills
Current Ratio = Current Assets/Current Liabilities
Quick Ratio (Acid-test Ratio) = (Current Assets – Inventory)/Current Liabilities
Cash Ratio = Cash/Current Liabilities
b) Kohinoor Textile Mills
Current Ratio = Current Assets/Current Liabilities
Quick Ratio (Acid-test Ratio) = (Current Assets – Inventory)/Current Liabilities
Cash Ratio = Cash/Current Liabilities