Analysis of the Sources of Finance (Debt Versus Equity) for Select Harvests Ltd and Capilano Honey Ltd in 2017 as Compared to 2016

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An analysis of the sources of finance (Debt versus Equity) for Capilano Honey Limited and   Select Harvests Limited in 2017 as compared to 2016

Debt to Equity Ratio

This ratio measures the correlation connecting the capital contributed by the owners and investors and the capital provided by creditors.

            The formula is:

            Total Liabilities/ Debt

            Net Worth/ Total Equity

Capilano Honey Limited debt to equity ratio was 0.788519507 and 0.545737937 in 2016 and 2017 respectively. On the other hand, Select Harvests Limited ratios were 0.545737937 and 0.727875253 in 2016 and 2017 respectively.  Debt to Equity at Capilano Honey Limited had declined in 2017 as compared to 2016; a lower ratio in 2017 means that the company was more financially secure as compared to 2016 (Goel 2016, p. 143). However, Select Harvests Limited had a lower debt to equity ratio in 2016 as compared to 2017; the debt to equity ratio increases showing that there is a higher risk to the creditors. There is an increase in the proportion of resources of a business which are financed by the debts. The ratios of both companies indicate that Select Harvests Limited is taking on more debt than Capilano Honey Limited relative to the equity value (Goel, 2016).

 

Debt to Total Asset Ratio

 The ratio is a measure of total liabilities, current, and long-term, in relation to total assets or the proportion of assets financed by debt:

 Debt to total asset ratio =

Capilano Honey Limited had a Debt to Total Asset ratio of 0.440878338 and 0.353059807 in 2016 and 2017 respectively. On the other hand, Select Harvests Limited had a ratio of 0.353225634 and 0.421254516 during 2016 and 2017 respectively. As shown the Debt to Total Asset ratio at Capilano Honey Limited had been declining which means that creditors have financed the company for 44% and 35% of the total financing in the two years respectively.  However, Select Harvests Limited Debt to Total Asset ratio has increased over the two years which shows that creditors’ financing has increased from 35% to 42% in the two years respectively (Goel 2016, p.144). A high percentage means additional leverage and more risk. Capilano Honey Limited has to a large extent higher degree of leverage than Select Harvests Limited, and consequently, a lesser degree of financial elasticity (Silva, Neves, & Horta, 2016).

Reference

Goel, S. (2016). Financial Ratios. New York, New York [222 East 46th Street, New York, NY      10017]: Business Expert Press.

Silva, A. D., Neves, R. F., & Horta, N. (2016). Portfolio Optimization Using Fundamental             Indicators Based on Multi-Objective EA. Lisbon: Springer.

August 18, 2023
Category:

Business

Subcategory:

Corporations Finance

Subject area:

Business Analysis Company

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