Question

if you are trying to fix a debt ratio for jraft/Heinz that is 42.9 percent and you decide the best plan is to increase sales. how should the plan be executed, and how will success and failure be measured

Answer 1

Following points will help executing the plan

1.In order to reduce debt - raising prices by increasing sales, or reducing costs can help. The extra cash generated can then be used to pay off existing debt.

Among the other strategies that can be employed are increasing profitability, better management of inventory, and restructuring debt. The methods used to lower the ratio are best used in tandem with each other and, if the market timing is right, used in conjunction with a rise in the pricing of their goods or services.

2.Four main areas of financial health that should be examined are liquidity, solvency, profitability and operating efficiency. However, of the four, likely the best measurement of a company's health is the level of its profitability.

Liquidity is the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations.

Solvency is a company's ability to meet its debt obligations on an ongoing basis, not just over the short term. A downward trend over time in the D/E ratio is a good indicator a company is on increasingly solid financial ground.

Operating efficiency - This metric indicates not only a company's basic operational profit margin after deducting the variable costs of producing and marketing the company's products or services; it thereby provides an indication of how well the company's management controls costs.

Profitability - Net margin is the best metric to evaluate profitability.Net margin ratio in compared to sales is crucial since profitability is compared w.r.t the turnover.A larger net margin, especially as compared to industry peers, means a greater margin of financial safety, and also indicates a company is in a better financial position to commit capital to growth and expansion.

Therefore we can measure success and failure through the above 4 parametres.