Question

Which financial products would be beneficial for a corporation that is small, gross profit margin of...

Which financial products would be beneficial for a corporation that is small, gross profit margin of 31%, inventory turnover ratio of .35, and a debt ratio of 71%? Why?   

I was thinking bonds because of the fixed interest rates and the low sales but the fact that they have potential to grow.

Homework Answers

Answer #1

Ans: Since corporation is small at this point of time with a very healthy Gross profit margin to sales and also having adequate debt ratio, I would recommend that corporation should go for either bonds or convertible debentures. In bonds company will have to bear the interest expenses, which can be managed since corporations has healthy Gross profit margin.

In convertible debentures, if corporation choses to go than in that case company has to bear the int. exp till the time period of debentures are not allowed as to be converted ito shares, the time period is generally 10 to 15 years. and this period corporation may grow up big and in that case it can afford to have equity hence debentures can easily be converted into equity and corporation will not need to pay out the debentures.

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