1. Background of Flash Memory. Inc Flash memory was founded in San Jose, California in the late 1990s. In 2010, there are six individuals held the top management positions, comprised the board of directors, and owned the entire equity in the firm.Flash specialized in the design and manufacture of solid state drives (SSDs)and memory modules which comprised the fastest growing segment in the overall memory industry. SSDS market is huge and intensely competitive which reflects in product offerings, high rivalry, and low profit margins as a percent of sales. Flash’s competitions include Intel, Samsung, Micron Technology, etc. Due to theproducts ‘characteristic and stiff competitors, its sales life cycle is short, usually only six years. In …show more content…
If this ratio is high means company owns too many debts which may decrease their net income and increase their risk of business. On another hand, company with larger debt means the large amount of borrowing money is used to enlarge business, which meets the beginning ‘description that Flash is a high-speed growth company and already reached the 70% limitation. c) Asset Management Inventory turnover ratio is around 1.8 times = the amount of inventories has almost 1.5 months before being sold. d) Profitability: The figures of Gross Margin Ratio and ROE (Figure3) shows Flash has becoming better since 2008. Gross Margin Ratio continues increase in the futures, but ROE will begin decrease at 2011. This may because the 2011’s income will become to decrease while the cost still will increase. The average ROE for Semiconductor-Memory Chips industry firms is 9%, though Flash is larger than9%, its decrease is very rapidly so management should take care of this situation. e) Market Value Analysis The price-to-earnings (P/E) ratio is increasing since 2011, which means Flash is considered with high growth prospects. Since Flash ratio is lower than28.6%, the average for other Semiconductor-Memory Chips industry firms, this suggests that investors value Flash’s stock more less than most as having excellent growth prospects. Stocks with high P/E ratios carry high risk whenever the
The higher the ratio is, the more liquid the company. Chipotle managed to increase their ratio. This is a clear sign of greater financial performance.
2) The higher ratio of Debt to Total Equity may result to the lower of the debt credit rating. The lower of the credit rating will result to increase of the interest rate which will cost more to the company.
Assuming the company does not invest in the new product line; prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash's required external financing: in this case all required external financing takes the form of additional notes payable from its commercial bank, for the same period.
This ratio indicates a company’s liquidity. It depicts how many dollars of current assets exist for every dollar in current liabilities. The ratio is the higher, the better. Home Depot and Lowe’s has increasing current ratio while Home Depot has a slightly higher one.
Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.
Assuming the company does not invest in the new product line; prepare forecasted income statements and balance sheets at year-end 2010, 2011, and 2012. Based on these forecasts, estimate Flash's required external financing: in this case all required external financing takes the form of additional notes payable from its commercial bank, for the same period.
Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash
The CFO of Flash Memory, Inc. prepares the company's investing and financing plans for the next three years. Flash Memory is a small firm that specializes in the design and manufacture of solid state drives (SSDs) and memory modules for the computer and electronics industries. The company invests aggressively in research and development of new products to stay ahead of the competition. Increased working capital requirements force the CFO to consider alternatives for additional financing. In addition, he must also consider an investment opportunity in a new product line that has the potential to be extremely profitable. Students must prepare financial forecasts, calculate the weighted average cost of capital (WACC), estimate cash flows,
Debt-to Asset Ratio indicates that 48% of AMT's assets money comes from creditors (1985). In addition, the low current ration implies lack of liquidity (1.78 for 1986). Therefore, the company needs to rely heavily on outside financing to meet maturing obligations since there is no operating income.
The graph above shows a current ratio. It is used for measuring an ability of the company to pay off
The implication of this ratio in the future is that Artic PLC could run into cash flow problems if its customers are slow to pay. If the company is not receiving cash from its debtors it will not have the cash to pay its creditors. There is, therefore, a danger that it could possibly be going to run into
This is due to the fact that inventory and accounts receivable are left out of the equation. Based on the cash ratio, this company carries a low cash balance. This may be an indication that they are aggressively investing in assets that will provide higher returns. We need to make sure that we have enough cash to meet our obligations, but too much cash reduces the return earned by the company.
For example, a ratio of five indicates a company’s income is five times higher than the interest expenses owed for that year (Investopedia, 2015b). NTICE ratios of 2.5 or higher are favorable and considered an acceptable risk for investors and creditors, while
Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.
This is a highly capital intensive industry & it is normal to have a high debt to equity ratio.