Several potential investors have been studying the affairs of Pelican Corporation to decide whether to invest in
Question:
Several potential investors have been studying the affairs of Pelican Corporation to decide whether to invest in the company by purchasing unsecured notes which the company was proposing to issue. There was some speculation that the company was experiencing liquidity problems. The statements of financial position at 30 June 2018 and 2019 follow:
PELICAN CORPORATION Statements of Financial Position as at 30 June | |||||||||
2019 | 2018 | ||||||||
CURRENT ASSETS Cash at bank Marketable securities Accounts receivable (net) Inventories Other current assets | $ | 3264 1519 1178 2619 3094 | $ | 2832 1775 930 1848 3605 | |||||
TOTAL CURRENT ASSETS NON-CURRENT ASSETS | 11674 19960 | 10990 16276 | |||||||
TOTAL ASSETS | $ | 31634 | $ | 27266 | |||||
CURRENT LIABILITIES Accounts payable Bills payable Current maturities of long-term debt Accrued expenses Provisions | $ | 4880 1574 978 720 3420 | $ | 4300 2555 450 728 2345 | |||||
TOTAL CURRENT LIABILITIES | 11572 | 10378 | |||||||
NON-CURRENT LIABILITIES Long-term debt Accrued expenses (payroll) Other non-current liabilities | 5800 5425 2390 | 4160 4730 2055 | |||||||
TOTAL NON-CURRENT LIABILITIES | 13615 | 10945 | |||||||
TOTAL LIABILITIES | 25187 | 21323 | |||||||
TOTAL EQUITY | 6447 | 5943 | |||||||
TOTAL LIABILITIES AND EQUITY | $ | 31634 | $ | 27266 | |||||
Required
A. Calculate appropriate liquidity and financial stability ratios for the years ended 30 June 2018 and 2019. Research reveals that typical ratios in the industry for the current and quick ratios are 1.7:1 and 1.0:1 respectively. For financial stability ratios, industry averages are 2.5:1 for the capitalisation ratio and 60% for the debt ratio.
B. Comment on the liquidity and financial stability of the company, given the information available.
C. Would you, as one of the potential purchasers of the unsecured notes, lend money to the company? Explain why or why not.
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett