Question

Company name: ikeGPS Group Ltd

Discussion

(Use NZX website, from its financial profile, we could get this chart for 4 years.)

Annual report from NZX website, is used to analysis this company.

Liquidity

Introduce why it is important to assess liquidity

Outline the basic ratios used to assess liquidity, and provide an analysis of your company’s liquidity position relative to the previous year

Refer to the appendix where you have calculated or obtained the relevant liquidity ratios

Conclude as to whether or not this company is demonstrating good liquidity

300 – 350 WORDS

Financial Structure

Introduce why it is important to assess financial structure (or gearing)

Outline the basic ratios used to assess financial structure, and provide an analysis of your company’s financial structure relative to the previous year

Refer to the appendix where you have calculated or obtained the relevant financial structure ratios

Conclude as to whether or not the company shows a strong financial structure

300 – 350 WORDS

Answer 1

Liquidity ratios measure the level of current and liquid assets it evaluates the ability of the business to pay its short-term debts. This is frequently referred to as short-term solvency position or liquidity position of the business. In simple words it’s a way of describing how well you can cover your current liabilities using your current assets.

The commonly used liquidity ratios are given below:

1. Current ratio :The current ratio is a ratio that measures a company's ability to pay short-term and long-term obligations.
2. Quick ratio:The quick ratio is a measure of how well a company can meet its short-term financial liabilities.It is also known as the acid-test ratio
3. Absolute liquid ratio:he relationship between the absolute liquid assets and current liabilities is established by this ratio.
4. Current cash debt coverage ratio: Current cash debt coverage ratio is a liquidity ratio that measures the relationship between net cash provided by operating activities and the average current liabilities of the company.

Now we will understand the liquidity position of ikeGPS group ltd

1.Current Ratio:The company shows a current ratio of 2.40 relative to the previous year. It is a healthy sign and it means that the company’s currents assets are 2.40 times more than its current liabilities. A current ratio of 2:1 is considered ideal but ikeGPS is more than the ideal, the company will have a smooth time paying the current liabilites.

2.Quick Ratio : ikeGPS has $1.86 of very liquid assets available to cover each dollar of short-term debt, thus, the company is in a good liquidity position. ikeGPS has a very sound ratio and it implies that the business has maintained adequete liquidity in order to cover the short term obligations.

Yes,the company is demonstrating adequete liquidity as it has good amount of current assets to meet its short term obligations.

Capital Structure refers to the amount of debt and/or equity employed by a firm to fund its operations and finance its assets. The structure is typically expressed as a debt-to-equity or debt-to-capital ratio.

Debt and equity capital are used to fund a business’ operations, capital expenditures, acquisitions, and other investments. There should be a harmony of both constituents so that the business will operate smoothly without any hindrances.

1.The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

2.The debt-to-capital ratio is calculated by taking the company's interest-bearing debt, both short- and long-term liabilities and dividing it by the total capital.

The company has practically zero debt which makes us clear that the company is solely relying upon Equity to finance its operations. It is essential that the company should use debt so that it can trade on it equity and provide better returns to the shareholders.