Task: Balance Sheet Analysis

Objective: In this task, you will analyze a fictional company’s balance sheet, TechGains Corp, based on its Debt/EBITDA ratio, Interest Coverage ratio, and debt maturity schedules. You will then draw conclusions about the company’s financial health and its ability to service its debt.

TechGains Corp

Fictional Balance Sheet Data:

  • EBITDA: $500,000
  • EBIT: $600,000
  • Total Debt: $2,000,000
  • Interest Expense: $50,000
  • Debt Maturity Schedule (in $):
  • Year 1: $200,000
  • Year 2: $400,000
  • Year 3: $300,000
  • Year 4: $300,000
  • Year 5: $400,000
  • Year 6: $400,000

Task Instructions:

  1. Verify the Debt/EBITDA ratio:
  • Formula: Debt/EBITDA ratio = Total Debt / EBITDA

2. Verify the Interest Coverage ratio:

  • Formula: Interest Coverage ratio = EBIT / Interest Expense

3. Determine if the debt maturity schedule is well-staggered

  • Formula: Total Debt/ Debt Maturing in any given year

Analyze/Assess the following to be able to answer the Test questions

  • Assess the Debt/EBITDA ratio and determine if it falls within a safe range for a company in the technology sector or if it indicates potential financial distress.
  • Assess the Interest Coverage ratio and determine if it is adequate or if it indicates potential difficulties in covering interest expenses.
  • Assess the debt maturity schedule and determine if it poses refinancing risks for the company.