Mark X Case Answers

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1. See Appendix A 2. Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash. Debt Ratios. Mark X’s debt management is also getting worse, increasing from 40% in 1990 to 59% in 1992. The growth of debt outpaces the growth of assets as seen in the debt ratio. The TIE is…show more content…
Also, according to its leverage ratios, the company’s debts are not only very high, but are also increasing. Its decreasing TIE ratio indicates that its capability to pay interests is decreasing. The company’s efficiency ratios indicate that despite the fact that its fixed assets are increasingly being utilized to generate sales during the years 1990-1991 as indicated by its increasing fixed asset turnover ratio, the decreasing total assets turnover indicate that overall the company’s total assets are not efficiently being put to use. Thus, as a whole its asset management is becoming less efficient. Last but not the least, based on its profitability ratios, the company’s ability to make profit is decreasing. 4. See Appendix A 5. The 1992 year-end cash balance does not meet the 5% optimal cash balance, thus there is no left-over cash which could be invested on marketable securities. However the projected 1993 year-end cash balance of 35,874 meets the optimal cash balance, with an excess of 25,108.75. These excess funds can be invested on marketable securities thus yielding a 7% profit (1,757.6). After paying taxes, the net profit from marketable securities is 1,054.56. Retained earnings would increase by this amount with a corresponding increase in cash and marketable securities. 6. Mark X would be able to retire all of the outstanding short-term loans by the end of 1993. The forecasted balance sheet for the year 1993 shows a cash
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