Heavenly Reception Ltd Case Solution

Increased financial leverage has Jeffers concerned about the well-being of the company in case of a recession. Growth for his company has been phenomenal, and he wishes to continue playing safe despite the high debt to equity ratio.

The financial model has been drawn up for the four quarters and for understanding purposes financial ratios have been calculated for users to make more sense of financial statements. The analysis shows that Q1 is probably the slowest in terms of growth as compared to the rest of the year. Moreover, capital expenditure during the quarter seems to have put a further strain on growth and performance during Q1. Therefore, there is evidently a shortfall of cash during this period which is not recovered until later in the next quarters. Shortage of cash results in the current ratio (1.18) being lower than an ideal / acceptable range of 1.5 and above.

Q2 has the highest number of dish sales and installations, therefore leading to higher sales revenue. Excessive cash recouped through these sales can be used to pay off the Line of Credit. Q2 is also marked as the quarter with the highest figure for Net Income.