HI: This is my first time on here, hopefully someone can help me:

So I had a case study to do all the ration for this company (Abington Toys), after looking at the number obviously the company is in bad shape. My task now is to try to fix the problems to make it successful up to and including closing the business gracefully, after looking at all my options. So where would I go with this?

I would really appreciate it.

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INTRODUCTION

Abington Hill Toys, Inc is a high-risk company because its business is dependant on one variable, which is the holiday season. During the rest of the season inventory may just sit on the shelves or in warehouses, resulting in cost for the company. Using various financial calculations we can determine whether the company is a good investment option.

METHODOLOGY

A) Capital Asset Pricing Model
CAPM: K = Rf + B (Kcm-Rf)

B) Current Ration: Current Assets
Current Liabilities

C) Acid Ratio Test: (Cash + Short Term Investments + Net Accounts Receivable)
Total Current Liabilities

D) Average Collection Period: Accounts Receivable
Annual Credit Sales/360

E) Fixed Asset Turnover: Net Sales
Average Fixed Cost

F) Debt Ratio: Total Liabilities
Total Assets

SOLUTIONS

A) CAPM: K= .05 + 1.48 (.12 - .05)
K= .15

B) Current Ratio: 280,000 = .96
292,000

C) Acid Ratio Test: 10,000 + 120,000 = .455
292,000

D) Average Collection Period: 120,000 = 60
2,000

E) Fixed Asset Turnover: 120,000 = .13
920,000

F) Debt Ratio: 292,000 = .24
1,202,000

CONCLUSION:

This Company is at high risk because:

A) The risk adjusted discount is .15
B) Current liabilities exceed current assets because current ration is below 1
C) Average number of days customers take to pay their bills is 60 days
D) The acid ration test is below 1 therefore it can't pay their current liabilities

In conclusion the financial analysis of Abington Hill toys, Inc. Determines that the company in not in good standing. It would not be a good idea to invest either long or short term.

 CaptainForest Posts: 3,684, Reputation: 2085 Ultra Member #2 Oct 15, 2007, 09:41 PM
Since I don’t have numbers, I will just assume your calculations are correct.

Analysis of the numbers:

For the current ratio, you would like something around 1, you are at .96, that is pretty close.

A debt ratio of 0.24 is pretty good…means you have 76% equity.

Your acid test ratio of .455 is a bit low…

Some kind of Profit Margin would be useful.

60 Days to collect your AR, better to do it in 30, but 60 isn't super bad.

This company isn’t in the best of shape, but it is not a complete wash yet.

You might consider buying this company, if you would then be able to make changes.

For example, since they lose money on inventory during the now Christmas season, perhaps a JIT (Just in time) inventory system would be better, and save them money overall.

There are other reasons, but I take it your report is to just be on the financial analysis of the numbers.

Therefore, I would agree with you that this is not a good investment based solely on the information provided.

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