Find calculate appropriate liquidity and financial stability

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Reference no: EM132472328

Several potential investors have been studying the affairs Grafton Pty Ltd to decide whether to invest in the company by purchasing unsecured notes with the company was proposing to issue.

The statements of financial position at 30 June 2018 and 2019 follow:

GRAFTON PTY LTD

Statement of Financial Position

As at 30 June

                                                                    2019                            2018

CURRENT ASSETS                                               $                          $

Cash at bank                                                3,264                       2,832

Marketable securities                                     1,519                        1,775

Accounts receivable                                      1,178                            930

Inventories                                                   2,619                        1,848

Other current assets                                       3,094                        3,605

Total Current Assets                                       11,674                      10,990

Non-Current Assets                                          19,960                     16,276

TOTAL ASSETS                                                 31,634                    27,266

CURRENT LIABILITIES

Accounts payable                                                4,880                      4,300

Bills payable                                                         1,574                     2,555

Current maturities of long-term debt                           978                        450

Accrued expense                                                    720                         728

Provisions                                                             3,420                     2,345

Total Current liabilities                                              11,572                  10,378

NON-CURRENT LIABILITIES

Long-term debt                                                        5,800                     4,160

 

Accrued expenses (payroll)                                          5,425                      4,730

Other non-current liabilities                                           2,390                     2,055

Total Non-current Liabilities                                           13,615                  10,945

TOTAL LIABILITIES                                                         25,187                21,323

TOTAL EQUITY                                                                6,447                  5,943

TOTAL LIABILITIES AND EQUITY                                         31,634               27,266

Required:

Quetsion 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 ratiosthe Debt ratio (total liability/total assets) and the Leverage ratio (total assets/total equity), industry averages are 2.5:1 for the leverage ratio and 60% for the debt ratio. (must show your workings/calculations) (5 marks)

Quetsion b. Comment on the liquidity and financial stability of the company, given the information available. Would you, as one of the potential investors in unsecured notes, lend money to the company? Explain why or why not

Reference no: EM132472328

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