I used the MS Spreadsheet to prepare the amortization schedule, which highlights all the details of how the $1,000,000 loan amount will be repaid until there is nil balance at the end of the fifth year. The screenshot is attached.
The annual mortgage amount is $277,409.73 and the total interest over the five year period is $387,048.65.
Total asset turnover = sales/total assets
5 = 2,000,000/total assets
Total assets = 400,000
Current ratio = total current assets/total current liabilities
3 = total current assets/72000
Total current assets = $216,000
Total debt/total asset = 0.4
Total debt/400,000 = 0.4
Total debt = $160,000
Total liabilities and debt = $400,000
Total debt = $160,000
Shareholders Equity = (400,000 160,000) =$240,000
Current liabilities to equity ratio = 0.3 = Current Liabilities/240,000
Current liabilities = $72,000
Fixed assets = 400,000 216,000 = $184,000
Quick Ratio = 2 = (accounts receivable + Cash)/current liabilities
(Accounts receivables + Cash) = 72000*2 = $144,000DuPoint Identity #33
Return on Stockholders Equity = Net Income/ Stockholders Equity = $600,000/$2400000 = 0.25 which is equivalent to 25 percent.
Net profit margin = (Net Income/Total Sales)*100 = 400,000/10,000,000 * 100 = 4 percent.
Equity Multiplier = Total assets/Total equity = 4000000/2400000 = 1.67
Sales = total assets * total assets turnover = 4,000,000*2.5 = $10,000,000
The equity multiplier differs for Gulf from that of the industry average. Where the companys is 1.67 the industrys stands at 1.5. That means the industrys assets are largely funded by debt compared to the firms. There is also a difference in net profit margin where Gulf seems to be posting better revenues compared to the average industry.
The company can increase its multiplier effect to have more free cash to utilize, which will likely lead to better returns. Being too much dependent on equity denies the business an opportunity to utilize externally available financing options to make more returns. The firm can use that to expand, introduce new products among other initiatives likely to increase revenue. Utilizing external financing will post more profits, and with the equity remaining low the return on equity will be relatively higher.
Principle of Business Finance
The core essence of business finance is to analyze financial and growth options. Business finance looks at the implications of investment in growth opportunities with the firm. It is the used by the management to make accurate decisions either to pursue the opportunities or entirely abandon them. In essence, business finance aims at maximizing return on investments.
Microsoft, in a bid to enhance its services acquired Intentional Software Company in a deal whose value is not yet available publicly. The company was run by the Microsofts former employee, who also joined the company as part of the deal. The tech giant also finalized a deal worth $26 billion last year to take over LinkedIn. The two separate decisions were made to enhance the companies influence as the largest tech giant, and probably improve the quality of services it offers globally. Judging from the companys financial capabilities and global image brand, it can invest more in smartphone technology particularly in the hardware segment to compete with industry leaders like Apple, Samsung, LG, and others. The decision will most likely improve the companys equity as it reaches out to newer expanded markets.
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