Introductoin;
The company is dealing in real estate business and the company has achieved a net loss in the year 2016. The loss in the company has affected many areas and has led to the negative intrinsic value of the company, since company is making more purchases of real estates and has low operating net income. The company has low asset utilization ratios in comparison to its competitor and due to this low level of utilization the company is performing inefficiently and hence is considered to be performing worse in the market in comparison to the industry and competitors.
The company has ahigh level of current ratio and this ratio should be reduced to 1 by investing the cash stuck in the current assets elsewhere, so that the company gets some return on cash. The current ratio should be reduced and it should be made liquid, so that the company can utilize the liquid assets for the payment of its current debts.
The competitors seem to have a good position in comparison to the preferred apartment communities as the company seems to suffer a lot in its performance and its operations.The company does not have a good profitability position and the liquidity position of the company is also compared with the competitors. The two competitors which are chosen are Arcadia Realty Trust and Agree Realty Corporation.
Q1& Q2
Liquidity ratios
Current Ratio
The liquidity ratios consider the company’s liquidity as to how many liquid assets are there in the company to pay for the liabilities of the company. The liquidity of the company is calculated using the current and quick ratio. The current ratio of the PAC is 3.21:1 as this shows that the company has $3.21 of assets to pay off the liabilities of $1. This shows that the company has huge current assets and this cashshould be invested into the current assets somewhere so that the company should get some type of return.
Preferred Apartment Community Harvard Case Solution & Analysis
The competitor has the current ratio of 0.54:1(Acadia Realty trust) and the other competitor is Agree Realty Corp. and itscurrent ratio is 1.98. However, the industry average is 0.49 i.e. 0.5:1 and the key assumption here is that the last quarter is assumed to be the industry average for the company. The excess of any current asset should be invested, so that the company can earn some interest and this can lead to an increase in the cash inflows of the company.Moreover,it will be better to invest as the cash idle in the company of no use will lead to the company paying a huge opportunity cost as the interest would be rising and the company won’t be getting any return on the cash in the company. Furthermore, the company can further pay the interest cost by the interest earned from the investment made in the company.
Quick ratio
The quick ratio shows the true liquidity picture of the company as it excludes inventory from the current assets of the company as the inventory is thought to be the least liquid asset and hence is excluded in the calculation of the quick ratio, so that the investor can get the true liquidity position of the company......
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