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    Finance CWK 3

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    Jay Say
    This company is currently unprofitable, with a loss of 23.2% of revenue. It has adequate working capital and liquidity ratios above 4. However, its equity ratio is very high at 104% due to significant long-term debt. While current assets exceed current liabilities, continued losses could risk the company's ability to repay debts. Understanding the creditworthiness of all parties involved in a project is important to evaluate their ability to fulfill contractual obligations and mitigate risk for the project's success. Key advisers include lawyers, accountants, and engineers, so potential conflicts of interest must be considered.

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    Finance CWK 3

    Uploaded by

    Jay Say
    143 views1 page
    This company is currently unprofitable, with a loss of 23.2% of revenue. It has adequate working capital and liquidity ratios above 4. However, its equity ratio is very high at 104% due to significant long-term debt. While current assets exceed current liabilities, continued losses could risk the company's ability to repay debts. Understanding the creditworthiness of all parties involved in a project is important to evaluate their ability to fulfill contractual obligations and mitigate risk for the project's success. Key advisers include lawyers, accountants, and engineers, so potential conflicts of interest must be considered.

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    This company is currently unprofitable, with a loss of 23.2% of revenue. It has adequate working capital and liquidity ratios above 4. However, its equity ratio is very high at 104% due to significant long-term debt. While current assets exceed current liabilities, continued losses could risk the company's ability to repay debts. Understanding the creditworthiness of all parties involved in a project is important to evaluate their ability to fulfill contractual obligations and mitigate risk for the project's success. Key advisers include lawyers, accountants, and engineers, so potential conflicts of interest must be considered.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    143 views1 page

    Finance CWK 3

    Uploaded by

    Jay Say
    This company is currently unprofitable, with a loss of 23.2% of revenue. It has adequate working capital and liquidity ratios above 4. However, its equity ratio is very high at 104% due to significant long-term debt. While current assets exceed current liabilities, continued losses could risk the company's ability to repay debts. Understanding the creditworthiness of all parties involved in a project is important to evaluate their ability to fulfill contractual obligations and mitigate risk for the project's success. Key advisers include lawyers, accountants, and engineers, so potential conflicts of interest must be considered.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 1

    Question 5

    1. Profitability= Profit before tax/revenue= -10878/46920= -23.2%


    2. Working capital = current asset-current liabilities=£333839-£81775 = £252064
    3. Current ratio= current assets/current liabilities=£333839/£81775=4.08
    4. Liquidity (quick/acid test) ratio= (current assets-inventory)/current liabilities= (£333839-
    0)/£81775 = 4.08
    5. Equity ratio = long term debt/share capital and reserves = (£301,378/£288,136) x 100 = 104%
    6. The ROCE has several limitations.
    1. In does not take into account the time value of money
    2. It does not take into account the period in which the revenue was made. It basically
    ignores the timing of money
    3. It uses profit rather than revenue. Profit is more susceptible to manipulation
    7. This appears to be a company currently performing poorly in terms profitability but at the
    same time possessing a huge amount of asset. In terms of its profitability it is currently
    operating at 23.2 % loss for every revenue made. This may be attributed the high staff
    related cost and operating expenses or inadequate revenue generated from operations. In
    addition to the losses made the equity ratio is extremely high due to the significant amount
    of long term loans the company owes. This put the transportation operator in a risky
    position because if the company continues to make losses then financing the debts would
    outweigh the revenue and therefore the business will be at risk of administration.

    On the other hand, the business currently possesses relatively are amounts of assess in
    relation to its liabilities e.g. the current ratio is 4.08. The high current ratio is due to high
    account receivables. This may be a good sign for the transport operator for future years as
    long as the company does not encounter significant difficulties getting paid their receivables.

    Question 6

    a. Explain the concept of “creditworth”.


    15 marks

    b. Using a project finance typical SPV Organogram (see Handouts on Moodle) state why it’s
    important to understand the “creditworth” of each of the Client, the
    Sponsors/Developers, the D&B contractor, his supply chain and subcontractors, and the
    Operations contractor(s) etc.
    see the Handout - SPV Organogram to help you answer this

    15 marks

    c. Who are the [key] advisers? Are there any conflicts or pitfalls for parties to be wary of in
    appointing advisers?

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