Financial Structure
The overall financial structure of JP Kenny Limited can be analyzed from the viewpoint of time duration, which includes short-term and long-term funds.
Debt- Equity Ratio
This ratio analyses relationship between borrowed funds and JP Kenny's capital. It is indicative of reflective claims of the creditors and the shareholders against JP Kenny's assets. Here analysis of the long-term Equity ratio and total equity ratio will be made.
Long-Term Debt -- Equity Ratio
This ratio establishes the relationship between long-term outside liabilities and JP Kenny's funds. It shows the proportion of the External and Internal Equities. The long-term debt for 2010 was 1, 138,000 pounds and the equity shareholder was 8, 885,000 pounds giving a 8:1 long-term debt equity ratio. This shows that creditors of JP Kenny have a larger claim than the shareholders, therefore it can be construed that JP Kenny will deal with stringent conditions from lenders, while borrowing money.
Total Debt-Equity Ratio
This includes all the debt from creditors against JP Kenny's claims preference shares equity shares, capital reserves, retained earnings among other items. In 2009, total debt was 17, 626,000 pounds while shareholders equity was 6, 940,000 pounds giving a ratio of 0.4: 1. In 2010, total debt was 17,855,000 while shareholders equity fund was 9,990,000 giving a ratio of 0.6:1. The ratio indicates an increased trend for the two years.
The increasing trend indicates that JP Kenny for the two years has depended upon borrowed capital. It also shows that for every 0.6 pounds of outside liability in 2010, JP Kenny has 1 pound of shareholder capital.
Debt - Asset Ratio
This ratio measures the extent to which the assets of JP Kenny are supported by borrowed funds. Here, the total debt is compared to the total assets. In 2009, JP Kenny's total assets were 7, 269,000 pounds and the total debt was 17, 626,000 pounds, therefore the ratio was 0.41: 1. Subsequently in 2010, the total assets were 10, 195,000 pounds while the total debt was 17,855,000 giving a ratio of 0.6:1. This showed an increased trend over the two years with 0.41 times in 2009 as compared to 0.6 times in 2010.
The average Debt- Asset ratio of 0.6 in 2010 indicates that for every 0.6 pound of outside liability, JP Kenny has 1 pound of total asset. This indicates that the shareholders are deprived the benefits of equity trading, the management did not exploit the debt. However, the increasing trend shows that the company has been increasingly financing the total assets from outsiders' money over the two years.
Liquidity Ratios
The liquidity ratio estimates JP Kenny's ability to repay short-term creditors and is a measure of the company's financial strength. In addition, if the value of the firm's liquidity ratio is greater than 1.0, then the creditors are fully covered. JP Kenny's liquidity ratio is given as liquid assets divided by short-term liabilities. Liquidity ratio is used to measure different types of assets.
Current Ratio
This ratio is used in measuring JP Kenny's liquidity by deriving proportion of assets to cover current liabilities of the company. The evaluation of JP Kenny's current ratio may be misleading since chances of JP Kenny's liquidating assets to meet liabilities are limited. The current ratio of JP Kenny shows the firm's ability to meet its short-term liabilities using the short-term assets.
JP Kenny's current ratio during the year 2009 was 1.4. This ratio is an indicator that the company is able to meet its debt problems. The share at 1.4 indicates that the company is able to satisfy its short-term liabilities by using their short-term assets.
In addition, JP Kenny's current ratio rose to 1.6 during the year 2010. This ratio shows that the current assets exceed the value of current liabilities. This ratio, which is more than 1.5, is recommended for the company as it illustrates JP Kenny's ability to meet debts using their assets. This ratio greater than 1.0 means the company does not have liquidity issues. This current ratio in addition, shows that the firm's money is tied up in current assets.
Quick Ratio
JP Kenny's quick ratio measures the liquid current assets and excluding inventories but includes account receivables and certain investments made by the company.
JP Kenny's quick ratio during the year 2010 stood at 1.2. The firm's quick ratio which was more than 1.0 means the company is having little problem with liquidity. The higher the ratio, the more liquid the company is, and is better placed to ride out of possible economic downturn in its business. In addition, the quick ratio of 1.2 indicates that the company's...
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