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Anisul FDM
Anisul FDM
Anisul FDM
Method: Debt Ratio in Short Term = Total liabilities in Short Term/ Total Assets
30%
29%
2020 2019 2018
The current liabilities are short term, meaning they are to be settled within a year, for instance, short-
term debts accrued expenses, and customer deposits. From 2018 to 2020, Acme Laboratories had
short term liability ratios less than 0.5, making it an attractive choice for the investors.
Method: Debt Ratio in Long Term = Total liabilities in Long Term/ Total Assets
The long-term debt to total asset ratio is a solvency or coverage ratio that calculates a company’s
leverage by comparing total debt to assets. In other words, it measures the percentage of assets that
a business would need to liquidate to pay off its long-term debt
It is visible from the graph, we can see that Acme Laboratories Limited has long term liability ratios
of 14.15% to 12.74% to 16.22% in 2018, 2019 and 2020 respectively. So we can say that though the
company has more assets than debt, but they are relying more on debt financing. But debt financing
can also indicate the undertaking new projects as well as lower tax expenses, so the investors can
sense new opportunity to make profit through investment. Thus, debt financing can also make
Acme Laboratories Limited a good investment choice for the investors.
100.00%
106.98%
95.83%
84.90%
50.00%
0.00%
20,374,083,017 17,578,207,543 14,980,083,494
The debt-to-equity (D/E) ratio is used to evaluate a company's financial leverage and is calculated by
dividing a company’s total liabilities by its shareholder equity.
The D/E ratio is an important metric used in corporate finance. It is a measure of the degree to which
a company is financing its operations through debt versus wholly owned funds. More specifically, it
reflects the ability of shareholder equity to cover all outstanding debts in the event of a business
downturn. The debt-to-equity ratio is a particular type of gearing ratio.
It is visible from the Graph from the graph we can see that the financial leverage ratio of Acme
Labratories Limited has increased to 106.98% in 2020 from 95.83% in 2019 and 84.90% in the prior
year. Among three years it has the highest value in 2020 and lowest in 2018. As ratio is greater than
1 in year 2020, there is higher risk for the investors to invest.Though stockholders like to get benefit
from the funds provided by the creditors, the risk is pretty much dominant. So we can say that Acme
Labratories Limited should be considered as a high risk company to invest in 2020 though the
shareholders can be more benefitted if the company is going for any project, also they have to pay
less tax for that
Method: Interest coverage ratio = Earning before Interest & Taxes / Interest Expense
3.50
INTEREST -COVERAGE RATIO
3.00
2.50 2.86
2.00 2.38
2.16
1.50
1.00
0.50
0.00
1 2 3
The interest coverage ratio is a debt and profitability ratio used to determine how easily a company
can pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a
company's earnings before interest and taxes (EBIT) by its interest expense during a given period.
The interest coverage ratio is sometimes called the times interest earned (TIE) ratio. Lenders,
investors, and creditors often use this formula to determine a company's riskiness relative to its
current debt or for future borrowing.
It is visible from the graph that the Interest coverage ratio of Acme Laboratories Limited decreased
gradually in three years. It has the lowest interest coverage ratio of 2.16 in 2020, declining from2.38
in 2019 and 2.86 from 2018. These Interest coverage ratios are well above market average of 1.5, so
we can say that Acme Laboratories Limited can be considered as investment worthy company in
market
Reference: page 129 of 2020 and page 116 of 2019