Mark X Company Case Essay

4486 WordsMay 18, 201118 Pages
The Mark X Company (A) Case 1 We must analyze past data and provide expected data for the next two years to assess Mark X Company's financial position. Upon reviewing the data, we will make recommendations for both Mark X Company as well as Karen Dennison of Wells Fargo Bank. Senior management needs compelling evidence that shows the current difficulties faced by the company are not permanent.. It must also be accessed if Mark X can retire all of its outstanding loans by the end of 1993. A sensitivity analysis should also be conducted since the future of this company is very dependent on its performance in 1993 and 1994. Mark X Company is a manufacturer of farm and specialty tailors. Over 85% of sales come from the western part of the…show more content…
Liquidity Ratios: The Pro Forma statement shows the current ratio decreasing from 1990 and 1992 to 1.75. Although current assets have increased between 1990 and 1992, current liabilities have increased even more. This is due to the significant increase in short-term bank loans and accounts payable, as described in the problem. According to this ratio, Mark X Company needs to increase its liquidity. The quick ratio shows that a huge component of Mark X’s current assets is made up of inventory which is the least liquid asset. Therefore, Mark X Company cannot cover its liabilities without its inventory since this ratio is less than one. Both of these liquidity ratios are below the industry average which putting the Mark X Company in a weak financial position. Leverage Ratios: Debt ratio measures total liabilities as a percentage of total assets; the higher this ratio, the greater the debt. Although 1990 and 1991 have debt ratios below the industry average, the ratio in 1992 is almost 10% above the average. This high ratio is another weakness and proves they are holding too much debt. Again, this high ratio can be accounted in part due to the high quantities of short-term bank loans and accounts payable. The TIE ratio helps determine how many times a company can cover its interest expense. In 1992, this ratio is only 1.42 compared to the industry average of 7.7. This is because

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