Reference no: EM132440626
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
2019 201
$ $
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:
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 ratios the 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)
b. Comment on the liquidity and financial stability of the company, given the information available.
c. Would you, as one of the potential investors in unsecured notes, lend money to the company? Explain why or why not