make Solvency Ratios ( total debt to total assets ratio, times interest earned a
ID: 2749793 • Letter: M
Question
make Solvency Ratios ( total debt to total assets ratio, times interest earned and free cash flow)
and are they in healthy condition?
Australian Agency for International Development INCOME STATEMENT For the year ended 30 June 2009 2009 Notes $000 INCOME Revenue Revenue from Govenment Sale of goods and rendering of services Total revenue 3A 130,219 738 130,957 108,506 109,068 Gains Other gains Total gains Total income 412 412 109.480 3C 548 548 131,505 EXPENSES 80,648 44,146 6,138 791 234 13 131,970 4A 4B 66.023 37,158 5,374 614 Employee benefits Depreciation and Finance costs Write-down and impairment of assets Losses from asset sales Total expenses 4D 4E 102 109,326 Surplus (Deficit) attributable to the Australian Government 154 The above statement should be read in conjunction with the accompanying notes.Explanation / Answer
1. Total debt to assets ratio is total debt/total assets . The total assets for the year 2009 is 52003 and the total liability is 21682.
hence the ratio is 21682/52003 = 0.42
2. Times Interest earned is EBIT/ Total Interest .
EBIT for the year 2009 is calculated as total revenue - Employee Benefits - COGS(Suppliers) - Deprication and other expesnes other than interest= 131505- 80648-44146 -6138 -234-13= 326.
The interest expese( Financing Cost) = 791
Hence Times ineterst earned is 326/791 =0.41
3. Free cash flow is given by the formula EBIT*(1-Tax rate) + Depricaition and amortization -Change in Working Capital - Capital expendtiue.Since the TAx rate is not specified, we cannot calculate the FCF or the free cash flow.
Health: The financial heath of the company is not good as the compnay has made a loss in the years 2009 which is the most recent year. The company's debt level looks fine with the debt to asset ratio. However, the large employee benefits and the cost of goods sold make it unprofitable for the company. hence the compnay needs to identifty ways to reduce these two costs and tranform the company into profitable one
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