Financial management Case Study Example | Topics and Well Written Essays - 1500 words

Financial management - Case Study Example However, a ratio above 2 would mean that PQ is not investing excess assets. For best and optimal performance, a W/C ratio between 1.2 and 2.0 is sufficient. A debt ratio that is greater than 1 would indicate that Mr. Banks company owns more debts in comparison to assets. Similarly, if his company is capable of having a ratio that is less than 1, this indicates that PQ has more assets compared to debt. When the debt ratio is used in conjunction with other measures of financial health, Mr. Banks would find it easier to determine the risk level his company is to face in the near future. If PQ earned $20 million in revenue solely from producing widgets and was successful in incurring $10 million in COGS- related expense, the gross profit margin of Mr. Banks Company would be 50%. This shows that for every dollar that the PQ Company would earn on widgets, the company gets only $0.50 at the final stage. While considering the earning s of PQ, the entire picture of the company’s position is not clearly understood. If the company would amplify its earnings, it is not only that the company would benefit from it, but also the margin of the company would also be improved. For example, if Mr. Banks Company has costs that have risen at a rate greater than the sales, the result would be that the company would face lower profit margins. This would indicate to the company that costs are in dire need to be control in a better manner. Before converting his investments, Mr. Banks must consider several factors which effect PQ directly and indirectly. For the purpose of equity finance, PQ could become a corporate entity. This is mainly because this brings forward the easiest method for raising capital form several investors. These particularly include those investors which who are not interested in participating in the business actively. An example includes that it becomes far easier and risk free to convince 20