Abington Hill Toys

ABINGTON-HILL TOYS, INC. 1. INTRODUCTION Abington- knoll Toys new president, Vernon Albright, hires a new company comptroller, David Hartly. Hartlys first task was to complete an depth psychology of the firms condition and generate financial planning for the company. 2. METHODOLOGY A. Current balance B. Acid-test ratio C. Inventory Turnover Ratio D. Debt-Equity ratio E. realise Margin F. Net Profit Margin G. Z Score 3. SOLUTION A. 280,000/290,000=. 97 B. 130,000/290,000=. 45 C. 900,000/150,000=6 D. 490,000/710,000=. 69 E. 300,000/1,200,000=. 25 F. 60,480/1,200,000=. 05 G. 1. (-10,000/1,200,000)+1. 4(60,480/1,200,000)+3. 3(126,000/1,200,000)+ 1. 05(1,200,000/1,200,000)=1. 46 4. CONCLUSION The period ratio of . 97 means for every $. 97 of current assets, Abington Hill Toys has $1 of current liabilities. Since the current ratio is less than the exemplar of 3. 5, Abington Hill Toys implies a high risk and a probable incapability to generate sufficient working capital to meet its shor t-term needs. The acid-test ratio of . 45 is less than one-half of its current ratio which means Abington Hill Toys inventory comprises of more than half of its current assets.The inventory turnover ratio of 6 is higher than 5 which is the standard for companies in this industry. Since this ratio is higher than average, Abington Hill Toys is showing strong sales. The higher than standard inventory ratio could also mean ineffective buying of inventory. The debt-equity ratio of . 69 means Abington Hill Toys has $. 69 of debt to every dollar of equity. This would put them in at a lower risk to enhance financial leverage. The hoggish margin is at 25%. This means Abington Hill Toys is only wining 25% above their direct costs. This is equivalent to the standard of other companies in this industry.The crystalize profit margin of 5% is less than the standard of 8%. Abington Hill Toys net profit margin means equity holders will only receive 5% from every dollar after all expenses, interes t, and taxes are paid. The low Z score of 1. 46 would sway me to not lend the money. By Altmans scale, Abington Hill Toys has a 95% chance of going into bankruptcy in 12 months. Along with the high probability of going into bankruptcy within 12 months, the net profit margin of 5% doesnt seem worthwhile. I would rather invest in something safer for that low of a return.