International finance Case Study Example | Topics and Well Written Essays - 750 words

International finance - Case Study Example hy debt to equity ratio for a business should be such that the equity is high than the debt, since it is only then, that a business can demonstrate its ability to pay its debts using its own resources, without borrowing externally (Tyran, 1986:38). However, the debt to equity ratio of NDP points to the fact that the company’s financial status is not healthy, since the company had a debt to equity ratio of 100% (Moffet & Adelson, 2011:44). This means that the company’s debt is equal to the company’s owned resources and as such, should the financial crisis extend for long, the company cannot remain with any resources to continue its operations, since it would use all of its resources to pay up debts. The other pointer to the unhealthy financial status of the NDP is the high interest expense which the company is incurring. The increase in the debt levels of the company has a corresponding increase on the cost of capital, in form of the interest charges (Moffet & Adelson, 2011:44). Thus, considering that the interest expenses for NDP are consistently increasing, with the company having an interest expense of HK$102 by December 2008, but the same increasing to HK$480 in millions by march 2009 (Moffet & Adelson, 2011:43). This simply means that the company is obtaining its capital at very high costs, which are then unhealthy for the operation of the company. The other issue that indicates that the financial status f NDP is not healthy is its earnings ratio. The earnings ratio measures the rate at which the business is able to generate revenues, after it has paid costs of generating the revenues, such as interests, taxes and depreciation of the assets applied towards generating the revenues (McClure, 2011:n.p). For example the earnings of the NDP by September 2008, was HK$ 3,988 million, but the same had reduced to HK$ 2,049 million by March 2009, indicating that the revenues for the company were consistently reducing (Moffet & Adelson, 2011:43). This is a pointer