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This 6 page Class Notes was uploaded by Berta Von on Wednesday September 23, 2015. The Class Notes belongs to BUSN501 at Drexel University taught by AlbertDeRitis in Fall. Since its upload, it has received 26 views. For similar materials see /class/212355/busn501-drexel-university in General Business at Drexel University.
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Date Created: 09/23/15
Creditors Creditors are the one of the main actors of the business life because most companies employ debt in I A operating their business Obviously it provides both and quot 39 to the r depending on a variety of factors such as interest rates well being of the economy and time period of back payment From the company s perspective choosing the right type of capital may differ based on different criteria On the other hand the willingness of the creditors to provide credit usually depends on nancial and operative well being of the company Creditors would like to gain an insight into the future of their investment The instruments used in evaluating nancial health of a company are liquidity ratios and nancial leverage solvency ratios In this part of the project we from the creditors perspective have tried to analyze nancial strength of Deere amp Company and AGCO based upon threeyear nancial statements of the two companies 11 Current Ratio Creditors use liquidity ratios to measure whether or not the rm has the ability to pay off its short term debt One of the most commonly used ratios is current ratio FIGURE 11 Current Ratios over three years period 0 AGCO Deere amp Company Ratios as a Percentage 2007 2008 2009 The Figure 11 shows that ACGO Corporation has a strong nancial structure to meet its short term obligations The company has an increasing trend of current ratio The graph displays that ACGO achieved the current ratios of 130 152 and 165 respectively Current ratio analysis also reveals that Deere amp Company has absolute ability to pay off its short term debts The gure 11 represents that Deere amp Company enjoys its current ratio of 180 in 2007 193 in 2008 and 240 in 2008 which exceeded the industry average ratio of 1 over three years period As a result Deere amp Company has signi cant superiority versus ACGO in terms of paying off the short term obligations which gives creditors a certain incentive that Deere amp and Company would be less risky investment at this point 2 Financial Leverage Analysis Financial leverage ratios are extremely important indicators of companies ability to meet their debt obligations These ratios provide valuable information to creditors whether or not the company owns proportionally enough equity In this part of the study we from a creditor s stand point tried to evaluate ability of meeting the long term debt obligations of Deere amp Company and ACGO Corporation based upon nancial statements of given three years 21 Debt to Equity Ratio analysis Figure 22portrays comparison of debt to equity ratios of ACGO and Deere amp Company Figure21 DebtEquity Ratios over three years period AGCO IDeere amp Company Ratios as a Percentage J 2007 2008 2009 The gure depicts that Deere amp Company employs relatively more debt capital than does the ACGO Corporation In 2007 the debtequity ratio is 439 in 2008 493 and in 2009 754 The company has overwhelmingly increased the proportion of debt over given three years On the other hand as shown in the graph ACGO draws more cautious picture in terms of choosing capital Despite a very slight uctuation the company has more stable trend of debt to equity ratio In 2007 the company used 134 times in 2008 153 times and in 2009 110 times more debt capital than equity In evaluating the risk level of the two companies from a creditor s stand point we can conclude that ACGO Corporation is not as aggressive as Deere amp company in nancing its activities with debt Regarding the possibility that the overall economy experiences a stagflation or a recession Deere amp Company may nd itself in nancial problems Therefore ACGO Corporation carries less risk than does Deere and Company TABLE A1 Year current assets Current TABLE A2 Deere amp Company given three year Year 2009 current assets Total Current Current Assets Current Ratio Current liabilities ACGO Corporation given three years Current ratio 2007 Current ratio 7002 Current ratio 700 7 721720833 130 2 no 7197s5 152 7 748516689 165 Deere amp Company given three year Current ratio 2007 Current ratio 7002 Current ratio mm M s451159215 180 M 4752152551 193 an 272127526 242 Total current assetsinventory Quick ratio Total current Liabilities ACGO given three years Quick ratio 2007 Quick ratio 7002 Quick ratio 70m Deere amp Comgany given three years Quick ratio 2007 Quick ratin7nnR Quick ratio 700 7 72171134220833 076 2 ms 71389919785 081 7 74851187316689 093 pa 451 23373159215170 79 47523041s152551173 2n a72 23973127526223 Yea r assets Total liabilities Debt ratio Total assets Deere amp Company Debt ratio calculations Debt ratio 2007 Debt ratio 7002 Debt ratio 70m ACGO Debt ratio calculations Debt ratio 2007 Debt ratio 7002 Debt ratio 70m Total Liabilities Debt to Equity Ratio Equity Deere amp Company DebyEguiy Ratio calculations DebtEquity ratio 2007 lt21 41995385757081 lt27 7m 93s7346083 lt26 2139S411326083 lt7 7446S47876057 lt7 9978549548060 lt7 65 1550622052 DebtEquity ratio 7002 DebtEquity ratio 70m ACGO Debt E ui Ratio calculations DebtEquity ratio 2007 DebtEquity ratio 2008 DebtEquity ratio 2009 lt21 4199571558439 lt27 7m 9565327493 lt26 2139S48187754 2744620430134 2997819570153 2653124091110 Other Ratios FIGURE 12 Quick Ratios of two companies Ratios as a percentage FIGURE 11 Quick Ratios over three years period OAGCO Deere amp Company 2007 2008 2009 Figure 21 Debt Ratios over three years Ratios as a Percentage Debt Ratios over three years period AGCO Deere amp Company 2007 2008 2009
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