SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION

KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

FINANCIAL RATIO CASE ANALYSIS:

MERRY LAND AMUSEMENT

Strategic Management / BSA 202

Submitted by: Group 4

 BELMONTE, Patricia
 BORJA, Dianne
 DAGARAGA, Caye Submitted to:
 GABATIN, Maricar Dr. Bienvenido Odejar

 IMPERIAL, Carlos Professor

 SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION
KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

I. BACKGROUND OF THE COMPANY

Merry land Amusement Park is a 50-acre facility theme park established in 1955. It is
located in Kansas City, Missouri US proposed to bring entertainment, joy and happiness to
Kansas City and surrounding areas by providing unique and quality attractions by the means
of technologically advanced rides and features. This theme park was a big attraction because
it is suitable for every age and the management really focus towards on the safety of the rides.
It was managed for about 33 years by Stanley Merry but unfortunately, he died and left the
park to his widowed daughter in law Samantha Steinberg who is considered to be his only
heir. Samantha do not have the heart in business. She does not have much interest in owning it
until her second husband Alan took the responsibility.

They operated the park from 1988 but as the time goes by, the maintenance budget and
the number of their employees were annually reduced which really affect the Merry Land’s
operation. They increased the entrance fee of the park but it cannot cover up its falling
revenues as well as the liabilities. Samantha and Alan decided to sell this 50 acre facility for
$5.8 million in the year 2006 but it seems like there are no buyers who want to shoulder this
price so in the next year 2007, they lower the price to $2 million but Samantha wanted to be
paid full in cash no leasing and notes available. Two other group tried to take over to it but it
was unsuccessful which leads to officially closing in the year 2009.
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II. ANALYZATION AND INTERPRETATION

 LIQUIDITY RATIO

2.5

1.5

0.5

0
2004 2005 2006 2007 2008 2009

Current Assets
 Current Ratio ¿
Current Liabilities
In current ratio, it indicates whether the business can pay debts due within one year out of
the current assets. In the given current ratio, wherein 2004, the industry had a 2.3:1 meaning
that it has a 2.30 of current asset for every 1 of current liabilities. In the next year, it
increases up to 2.4:1 which puts them into a good position. However, in the proceeding
years, the Merry Land’s current ratio is gradually decreasing compared on the first two
years. According to the given current ratio in 2006 it goes down to 1.9:1, as well as in 2007
where it decreases to 1.6. Further in 2008, which it leads to 1.4 until it reaches the year of
2009 wherein there’s no current asset that the Merry Land generates, which the mainly
reason why it puts them into a really tough spot for their business operations.
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 LEVERAGE RATIO

14
12
10
8
6
4
2
0
2004 2005 2006 2007 2008 2009

Total Debt
ebt ¿Total Asset =
 D Total Asset ¿
¿

The Debt to Total Assets Ratio of Merry Land in 2005 and 2006 is 0.05, in 2007, 0.07, in
2008, 0.09 and in 2009 is 0.13 which means, year 2005 to 2009, Merry Land has a good debt
ratio that give the business to generate enough cash to service its debt.

Total Debt
ebt ¿ Equity=
 D Total Stockholde r ' s Equity ¿
¿
The Merry Land has a Debt to equity ratio of 0.05 in 2005, 0.06 in 2006, 0.07 in 2007, 0.10 in
2008 and 0.14 in 2006. Every year the debt to equity ratio Merry Land increases, means that
their debt every year also increases. The industry has a debt ratio that is close to zero, which
means the business has a conservative financing strategy of using more the equity to pay for
assets and hasn't relied on borrowing to finance operations.

P.B.I .T .
nteres t Earned=
 I Total Interest Charges ¿
¿
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The Merry Land has a times interest earned ratio of 12.27 in 2004, decreases to 9.5 in 2005
and 3.67 in 2006, in 2007, it increased to 7.5 and in year 2008, it continues to increase with a
ratio of 8.16. Having a high times interest earned ratio is good opportunity risk for the
company because it means, they business income is higher than their interest expense. They
are able to meet its interest obligation because their earnings are significantly greater than
their interest obligations.

 PROFITABILITY RATIO

0.8
0.6
0.4
0.2
0
2004 2005 2006 2007 2008 2009

Gross Profit Margin

Sales−COGS
¿
Sales ¿
¿
The Merry Land Amusement Park generated a 0.75 gross profit margin in the year 2004. During
2005 to 2007, the gross profit margin has decreased from 0.75 to 0.68. In 2008, they got 0.66
which is 0.02 less than the previous years. However, they didn’t generate a gross profit margin in
2009 because there are no sales and cost of goods sold for that year, so the result is 0.00. The
 SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION
KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

reason that the Merry Land Amusement Park had a high gross profit in 2004 is because the
company is better in managing its Cost of Goods Sold. Even so, the gross profit margin reduced
in the following years due to the inefficiency of the company in controlling their cost of goods
sold.

In 2004, the industry had a 0.41 operating profit margin and it increased for about 0.04 in 2005
that made to 0.45. The operating profit margin in 2006 was 0.38 which is 0.07 less than the year
2005. For the year 2007, it was 0.42 and it continued to increase to 0.44 in the year 2008 by 0.02.
Just like the gross profit margin, the company did not generate operating profit margin in the
year 2009 because there are no EBIT and sales. This means that the Merry Land Amusement
Park did a good tax planning that leads to a reasonable profit on sales in 2005 and 2008.
Nonetheless, due to the company’s operational inefficiency, the years 2004, 2006, 2007, and
2009 are lower since the firm can’t make a reasonable profit on sales.

Net Income
et Profit Margin=
 N Sales ¿
¿ Land Amusement Park in 2004 was 0.09 and it decreased to 0.07
The net profit margin of Merry
by 0.02 in 2005. The 0.07 in 2005 had decreased to 0.03 in 2006 by 0.04. It increased in 2007 to
0.05 and stays the same in 2008. The result in 2009 remains 0.00 like the gross profit margin and
operating profit margin because there is no net income and sales for the year. The Merry Land
Amusement Park’s net profit margin indicates that the company is not better at controlling its
overall expenses required to run the business.

Net Income
OA=
 R Total Assets ¿
¿ Land Amusement Park got a 0.00 return on total assets because there are no
In 2004, the Merry
total assets for the year. From 0.00, it went up to 0.02 in 2005 and it decreased to 0.01 in 2006.
The return on total assets increased to 0.02 in 2007 and stayed to 0.02 in 2008. There is no net
income for the year 2009 so the result is 0.00. The higher the return on total assets the better.
However, the return on total assets in 2009 became 0.00 because the company was not able to
utilize their resources well in generating their income.
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Net Income
OE=
 R Total Stockholde r ' s Equity ¿
The industry was not able¿ to generate return on stockholders’ equity in 2004. The ROE increased
from 0.00 to 0.02 in 2005 and reduced in 2006 to 0.01. In 2007, it increased to 0.02 and stayed
the same in 2008. Just like the return on total assets, the firm wasn’t able to make a return on
stockholders’ equity in 2009 because there is no net income for the year. This means that the
owner of the Merry Land Amusement Park won’t be able to get more return from his capital.

 ACTIVITY RATIO

Activity Ratio
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2004 2005 2006 2007 2008 2009

Sales
otal Asset Tur nover =
 T Total Asset ¿
¿

For the Total Asset Turnover Ratio, it indicates the efficiency with which the industry is using its
assets to generates revenue. The higher the assets turnover ratio, the more efficient an industry is
at generating revenue from assets. In the given total asset turnover ratio, in 2004, the industry
had a 1.5 which means it where able to produce enough revenue at the end of the year. Follow by
 SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION
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2005 with an increase of 0.2 that leads to 1.7. However, entering in the year of 2006, the industry
started to slow down. The total asset turnover for the proceeding years is gradually decreasing
until it reaches to the year 2009, wherein it turns out to be that the industry’s total assets aren’t
able to produce enough revenue which leads to zero and it is not good for the industry to
continue.

Sales
Tur nover=
 Fixed Asset ¿ Asset ¿
¿
For the fixed assets turnover, it is how the company efficiently use their fixed assets to generate
sales revenues. The fixed assets turnover of Merry Land Amusement Park generated a 0.30 for
the year 2005. In 2006, they got 0.28 which is 0.02 less than compared to the previous year. The
fixed assets turnover for 2007 is 0.31, it increased by 0.03. Following that, it continued to
increase to 0.36 in the year 2008 by 0.05. However, in 2009 they did not generate a sales
revenue; hence, the result is 0.00. The Merry Land Amusement Park invested high amount for
their fixed assets, however compared to their investments, they are not generating the sales
revenue accordingly. This indicates that their fixed assets are more than the revenue, and the
ratio is less than 1 which is not good because they are not able to produce enough sales revenue
at the end of the year.
 SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION
KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

III. CONCLUSION

Based from the results of the given data that the group had presented; the Merry Land
Amusement Park’s financial ratios are gradually decreasing every year, on occasion there are
times that it rises but mostly it falls due to the poor financial management that resulted to the
decision of the owners to sell and close the park in 2009. Thus, Merry Land has failed due to the
reason of poor management practices, lack of maintenance and lack of marketing.

IV. RECOMMENDATION

The presenters suggest that the Merry Land should follow one of the retrenchment strategies for
the good of their business. These are the divestment or liquidation. In divestment strategy, the
Merry Land should reduce the rides by selling it which are not interesting and implement a new
one which should be on a current trend to be more attractive to fully satisfy the customers.
Lastly, sell spare land and used the cash which will receive to renovate the park, improve its
efficiency and lower the unnecessary costs. On the other hand, if the divestment strategy won’t
work, the best alternative solution with this is the liquidation, wherein sell the park and winding
up of the business operations because even when the company tries to reopen the business, if
there are no alternative solution on the preceding problem it will be very risky and it may repeat
the history again.