Financial Ratios and Net present ValueFinancial Ratios – Analysis
Part (A)
Ratio Gamma Corporation Alpha Corporation
Liquidity A. Current Ratio 375,000/365,000=1.0274 580,000/425,000=1.3647
B. Acid Test Ratio (50,000+170,000)/365,000
=0.6027 (45,000 +395,000)/425,000
=1.0353
Debt Utilization C. Debt to Total Assets 585,000/1,140,000=0.5132 495,000/990,000=0.50
D. Times Interest Earned Ratio 211,000/35,000=6.0286 88,000/10,000=8.80
Profitability E. Return on Assets 118,000/1,140,000=0.1035 53,000/990,000=0.0535
F. Return on Equity 118,000/555,000=0.2126 53,000/495,000=0.1071
G. Gross Profit Margin 335,000/985,000=0.3401 163,000/560,000=0.2911
Asset Utilization H. A/R Turn Over Ratio 985,000/170,000=5.7941 560,000/395,000=1.4177
I. Average Age of A/R 365/5.7941=62.9951
˜63 Days 365/1.4177=257.4593
˜257 Days
J. Inventory Turn Over Ratio 650,000/155,000=4.1935 397,000/140,000=2.8357
K. Average Age of Inventory 365/4.1935=87.0395
˜87 Days 365/2.8357=128.7160
˜129 Days
L. Asset Turn Over Ratio 985,000/1,140,000=0.8640 560,000/990,000=0.5657

1.Financial Ratios – Analysis : Here in this part it should write :a detailed analysis with explanation for the ratios which was in the table (from A to L). It should be answer the following question for each part :
Q1: Explain what information does it provide; its essence or purpose.
Q2: Explain if Alpha Corporation did well or not based on result that you have from table. You might want to compare Alpha’s results with that of Gamma Corporation. Explain the probal reasons for the ratios.
(Make sure to focus and write about Alpha corporation more and it should be more than 200 words for each area)

1. Liquidity

A. Current Ratio
B. Acid Test Ratio
(More than200 Words)

2. Debt Utilization

C. Debt to Total Assets
D. Times Interest Earned Ratio
(More than200 Words)

3. Profitability

E. Return on Assets
F. Return on Equity
G. Gross Profit Margin
(More than200 Words)

4. Asset Utilization
H. A/R Turn Over Ratio
I. Average Age of A/R
J. Inventory Turn Over Ratio
K. Average Age of Inventory
L. Asset Turn Over Ratio
(More than200 Words)
2. Recommendation: Here in this part it related to the first part which it should write how to improve financial performance: discuss it by four areas; liquidity, debt utilization, profitability, and asset utilization. (Be sure in this part to write more than two recommendations for each area and your recommendation should solve the problem or the weak that the corporation have.
(Make sure to focus and write about Alpha corporation more and it should be more than 200 words for each area)

1. Liquidity
A. Current Ratio
B. Acid Test Ratio
(More than200 Words)

2. Debt Utilization
C. Debt to Total Assets
D. Times Interest Earned Ratio
(More than200 Words)
3. Profitability
E. Return on Assets
F. Return on Equity
G. Gross Profit Margin
(More than200 Words)

4. Asset Utilization
H. A/R Turn Over Ratio
I. Average Age of A/R
J. Inventory Turn Over Ratio
K. Average Age of Inventory
L. Asset Turn Over Ratio
(More than200 Words)

Part (2)

Proposal (A)
Year Cash Flow Present Value (PV)
10%
0 ($300,000) ($300,000)
1 $31,750 0.9091 $28,864
2 $63,885 0.8264 $52,795
3 $88,735 0.7513 $66,667
4 $167,625 0.6830 $114,488
5 $128,250 0.6209 $79,630
NPV = $42,444

Proposal (B)
Year Cash Flow Present Value (PV)
10%
0 ($700,000) ($700,000)
1 $48,125 0.9091 $43,750
2 $109,375 0.8264 $90,388
3 $170,625 0.7513 $128,191
4 $262,500 0.6830 $179,288
5 $354,375 0.6209 $220,031
NPV = ($38,352)
Proposal (C)
Year Cash Flow Present Value (PV)
10%
0 ($800,000) ($800,000)
1 $60,000 0.9091 $54,546
2 $160,000 0.8264 $132,224
3 $230,000 0.7513 $172,799
4 $335,000 0.6830 $228,805
5 $440,000 0.6209 $273,196
NPV = $61,570
Proposal (D)
Year Cash Flow Present Value (PV)
10%
0 ($510,000) ($510,000)
1 $276,650 0.9091 $251,503
2 $236,487 0.8264 $195,433
3 $58,250 0.7513 $43,763
4 $45,500 0.6830 $31,077
5 $20,000 0.6209 $12,418
NPV = $24,194

Based on the computations of four proposals (A-B-C-D), you should make recommendation as to which proposal should be adopted. Provide as well your reasons to justify your recommendation (This part should be more than 50 words)