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Financial Statements Paper Part II

Financial Statements Paper Part II Analyzing the company’s condition one has to utilize different tools such as those presented in the appendices, which shows that the company may have difficulty funding its proposed expansion program. Although management has outlined the available financing sources such as cash flows from operations, available cash on hand, and availability of credit facilities, these sources of financing, primarily the cash flows from operations, might be needed to pay the short term liabilities as they come due. Based on the company’s liquidity ratios, current assets are not sufficient in order to pay off current liabilities. Therefore, management needs to explore the additional financing options such as issuing long term debts and having additional equity. Even though, these options may have negative consequences. Seeing that the cost of borrowing may be comparatively higher as the interest coverage ratio is extremely low even if total debt are still less than half of total assets. Besides the additional borrowings could increase total debt’s percentage compared to total equity which could result to higher borrowing costs. The issuance of additional equity may not be approved by stockholders for this alternative could have a considerable impact on earnings per share, dividends per share and stock prices therefore if management fails to justify the expansion it will increase the shareholder wealth. In addition, the extra issuance of common stock for a financing source could possible is difficult at this time since the company issued new stocks in 2002. In simpler terms if the expansion takes place then the expected returns on the planned expansion should be comparatively higher than the company’s projected weighted average cost of capital. Therefore,

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