Cash Flow Statement Analysis Of Louisiana Grill (2016-2020) Essay.

For the five year period the cash flows of the business has been increasing. This is an indication that the business liquidity position is good. The retained earnings has also been on a rising trend showing that the profits from the business has been increasing. This is supported by the increasing profits before taxation as shown by the income statement. Depreciation and amortization has been on a declining trend showing that the value of the assets is decreasing as well as the outstanding loan to be paid by the business.

Common Size Statements therefore helps in the process of analysis of the major aspects related to the information production process.

From the analysis above pretax income has been increasing significantly since 2016. This could be attributed to strategies put in place by the organization which seem to be working for them. The cost of generating revenue has also been declining showing that the business has been putting in place cost cutting measures to enhance profits. It is also notable that the sales has been increasing as from 2016 to 2020.

The following financial ratios can be used to analyses a firm;

Gearing ratios which measures the financial risk of the firm. It is computed as = total liabilities / total assets and expressed as a ratio. The gearing ratio of Louisiana Grill for the year 2020 is

= 662691/1164059

= 0.57

The financial risk is average.

Return on Investment (ROI) = Net profit/Total Asset x 100. The ratio is used to compute the return on profit from the total investment made by Louisiana Grill. The higher the return the more the come is efficiently using its investment to generate income and vice versa. Therefore encouraging investors to invest more into the company and vice versa.

ROI of Louisiana Grill for the year 2020 = 278830/1164059 x 100

                                                                             = 24%

Acid test ratio computed by dividing (Current Asset – Inventory)/Current liabilities.

Louisiana Grill ratio for 2020= (487395-139310)/466620

                                  = 0.74:1

The firm is therefore liquid.

Gross profit margin which is computed as = Gross profit/Sales x 100 . For the year 2020 gross profit margin is= 1649385/4229192x100

                                                                                                      = 39.0 %

Valuation of common shares

This can be achieved by increasing company's price-to-earnings (P/E) ratio of Louisiana Grill.

This is computed as = 1/ (40000/1000)

= 0.25

Value of conversion feature over the value of the bond

This can be computed by multiplication of price of common stock with the conversion ratio.

Comparison of debt financing and equity financing

Debt

1000000 x 5% = 50000

Equity

10000 x 50% = 5000x 10 = 50000

Both yield equal returns but it’s better to use debt financing since it is interest on debt is tax allowable.   

References

https://www.investopedia.com/terms/c/conversion-value.asp

https://study.com/academy/lesson/conversion-valuation-definition-formula-calculation.html