The eBay Inc. is a company founded in 1995 in California, the USA. It deals with online services, where the merchants and individuals make their purchases and payments (Artikis, 2007). The company is based in the United States of America and executes its operations locally and internationally. There is a website that is called eBay.com used by merchants or any other interested parties (White, 1998). The company uses the PayPal mode of payment which enables to transactions in the rest of the world.

Over the last three financial years from 2010 to 2012, the company has been having a positive growth in the gross profit. In 2010, the gross profit was 6,592,000; in 2011, it was 8,191,000 and 9,856,000. It shows an improvement in the performance of the company annually.

Ratios

Liquidity Ratios

2012

2011

2010

Current Assets

6,817,000

4,691,000

5,577,411

Current liabilities

10,924,000

6,734,000

4,516,514

Ratios

0.624038814

0.6966142

1.2348929

The liquidity ratio of the eBay Inc. in 2010 is 1.2. During this year, the ratio shows that the company can cater for its short-term liabilities (Artikis, 2007). The recommended ratio which shows that the company is capable of settling short term liabilities is 1. In 2011 and 2012, the ratio was 0.6, which is below 1. It means that the current liabilities exceed current assets.

The Return on Assets= net income/total sales

2012

2011

2010

Net Income

2,609,000

3,229,000

1,801,000

Total Assets

37,074,000

27,320,000

22,003,762

0.070372768

0.1181918

0.0818496

The return on assets in eBay Inc. for 2010, 2011 and 2012 was 8%, 11% and 7% respectively. The company can utilize its assets effectively because it make a positive percentage annually (Pettit, 2007).

Earnings per Share=net profit after tax/ no of issued shares

2012

2011

2010

Net Profit after tax

2,609,000

3,229,000

1,801,000

No of issued ordinary shares

2,000

2,000

1,513

Ratio

1304.5

1614.5

1,190

The earning per share for the company in 2010, 2011, and 2012 was 1,190, 1614.5, and 1,305. The company’s shareholders can make a profit in the consecutive years. The share of a profit that they earn shows that the company is operating in a stable environment where it is making a profit (Gardner, 1998).

Debt to Equity=debt/ equity

2012

2011

2010

debt

16,209,000

9,390,000

6,701,583

Equity

20,865,000

17,930,000

15,302,179

0.776851186

0.52370329

0.4379496

The company maintains a high debt policy to equity. In 2010, 2011, and 2012 it was 0.43, 0.52 and 0.77 respectively. Over the three financial years, the company has been reducing the ratio of debt to equity.

The Clorox Company

It is an international company that is a headquartered in the USA, and which has subsidiary branches in other countries. It is concerned with production of household products such as Glad ForceFlex trash bags which kill bacteria, and salad which makes the food more tasteful. The company is also listed in the New York Stock Exchange, where it has the symbol of CLX (Pettit, 2007). The mission of the company is to improve the livelihood of individuals providing them with quality products.

Liquidity Ratios

2012

2011

2010

Current Assets

1,376,000

1,279,000

1,489,000

Current liabilities

2,061,000

1,365,000

1,645,000

Ratios

0.667637069

0.936996337

0.9051672

The current ratio of the company in 2010, 2011, and 2012 was 0.9, 0.9 and 0.7. The company current liabilities for three consecutive years are more than the current assets. It implies that the company cannot cater for its current liabilities (Artikis, 2007).

The Return on Assets= net income/total sales

2012

2011

2010

Net Income

541,000

557,000

603,000

Total Assets

4,355,000

4,163,000

4,548,000

0.12422503

0.13379774

0.1325858

         

The return on asset for the company in three financial years was 13% in 2010 and 2011, and 12% in 2012. The company utilizes its total assets effectively in comparison with the Net income (White, 1998).

Earnings per Share=net profit after tax/ no of issued shares

2012

2011

2010

Net Profit after tax

543,000

287,000

526,000

No of issued ordinary shares

159,000

159,000

159,000

Ratio

3.41509434

1.805031447

3

The earnings per share for the company were 3.4, 1.8 and 3 in 2012, 2011, and 2010. The profitability of the company is not relatively high. The shareholders earn this amount per share.

Debt to Equity=debt/ equity

2012

2011

2010

debt

4,490,000

4,249,000

4,465,000

Equity

1,889,000

1,789,000

1,866,000

2.376919005

2.375069871

2.392818864

The company is maintaining a capital structure that has more debt to equity. There is a stable debt to equity ratio of 2.3 over the three consecutive years.

Alaska Air Group, Inc. (ALK)

It is a holding company for Horizon Air and Alaska Airlines, which is based in Seattle, America. The airline serves more than 90 destinations in the USA and other countries all over the world. The company was founded in 1932 as Alaska AIR group. Over the years, the company has experienced tremendous performance to extent of award winning (Pettit, 2007).

Liquidity Ratios

2012

2011

2010

Current Assets

1,737,000

1,596,000

1,662,000

Current liabilities

1,501,000

1,510,000

1,424,700

Ratios

1.157228514

1.056953642

1.166561

The current ratio of the company is above 1 for the three consecutive financial years. Over the three years from 2010 to 2012, it was 1.2, 1.1 ans1.2. It implies that the company is able to meet its short term financial obligations (White, 1998).

The Return on Assets= net income/total sales

2012

2011

2010

Net Income

316,000

245,000

251,000

Total Assets

5,505,000

5,167,000

5,016,600

0.05740236

0.0474163

0.050034

The return on assets for three consecutive years is 5%. The company’s assets are utilized efficiently.

Earnings per Share=net profit after tax/

no of issued shares

2012

2011

2010

Net Profit after tax

316,000

245,000

251,000

No of issued ordinary shares

70,000

76,000

37,000

Ratio

4.514285714

3.223684211

7

The earnings per share for the company are 7, 3.2 and 4.5 in 2010, 2011, and 2012 respectively.

Debt to Equity=debt/ equity

2012

2011

2010

debt

4,084,000

3,993,000

3,911,200

Equity

6,926,000

6,341,000

6,122,000

0.589662143

0.629711402

0.638876

The company maintains a higher equity level to debt. It uses more equity in its capital structure. The ratios in the three financial are 0.63 in 2010 and 2011, and 0.59 in 2012.

Advantages of Debt Financing

Debt financing is a policy where the company uses borrowed money to finance its capital structure. When a capital structure is financed through the debt, the company experiences tax exemption. The money that is borrowed is not taxable (Gardner, 1998). It reduces the liabilities of the company. The company can, therefore, comfortably achieve its main objective of profit maximization due to the cut cost.

It is easier for the company to get funds in order to finance its operations (Pettit, 2007). The debt speeds up the rate at which the company would have grown if it solely depended on the proceeds from the business.

On the other hand, the debt financing has disadvantages. If the company employs a lot of debt to finance its capital structure, it is an indication that the company cannot sufficiently cater for its short-term and long-term liabilities. The company will face difficulties in securing loan financial institutions (Gardner, 1998). The money lender institutions want an assurance that the company that they are contracting with during loan lending is a reliable company capable of settling the loan. It is demonstrated by the use of little debt financing.

Recommendations

The three Companies eBay, The Clorox Company and Alaska Air Group should maintain a higher debt ratio to equity ratio, so that the companies would enjoy the benefits of tax exemption. The capital structure that is debt-financed ensures that the company develops significantly.

Also, the companies can source funds using financial instruments such as bonds. The bonds are long-term financial instruments that ensure that the company is financed properly (Artikis, 2007).

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