Case 1 Signal Cable Company

1799 Words Sep 21st, 2008 8 Pages
Case 1: Signal Cable Company

Introduction

The Signal Cable Company, located in Tarrytown NY, is a cable manufacturer for analog and digital interconnects, speaker, video and home theater cables. The company is well known for “highest standard in quality and customer service” and their “superior design” and “No-Hype approach resulted in one of the best price/performance ratio in the industry” (www.signalcable.com).

After a steady growth over the last few years, the management decided to enter in the fiber optics business. The market was growing, the demand increased and the competition was not too severe. Thus the company established two additional manufacturing facilities and increased its inventory to meet the raising number of
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Current Ratio = Current Assets Current Liabilities

2004: CR = 1,845,450 = 2.06 895,000

2003: CR = 890,000 = 2.51 355,000

The cash ratio decreased dramatically from 11.3% to 0.56%.
Cash Ratio = Cash Current Liabilities

2004: CashR = 5,000 = 0.0056 895,000

2003: CashR = 40,000 = 0.113 355,000

The absolute liquidity of the firm can be seen in the change of net working capital (NWC) and is $ 415,450. In the case of Signal Cable Company the change in net working capital is a negative sign for liquidity, because the amount is based on high accounts payable and low cash. Thus the capital can not be used in the short-term.

Change NWC = NWC 2004 – NWC 2003
Change NWC = 950,450 – 535,000 = 415,450

3. How does the market value of the stock compare with its book value? Is the book value accurately reflecting the true condition of the company?

The book value regards past costs of assets. The market value is the price of the share multiplied with the numbers of outstanding shares. The current book value of the company is 792,170 in 2004 and 692,000 in 2003 (Equity of ever year). The current market value of the company is 1,100,000 (price per share x amount of outstanding shares).
The book values per share increased from $ 3.46 in 2003 to $ 3.96 in 2004. The stock price shows the market value per share and increased in the last period to $ 5.50. This figure shows that the market values the