Zapatoes Inc.

1.) What is the Zapatoes Inc.’s capital

structure? What is the effect of an
additional debt? Additional equity?
 2015 2014

ASSETS = LIABILITIES + EQUITY ASSETS = LIABILITIES + EQUITY

100% 38.66% 61.34% 100% 48.78% 51.22%

Debt-to-Equity Ratio: 0. 6304 Debt-to-Equity Ratio: 0. 9524

2013

ASSETS = LIABILITIES + EQUITY

100% 48.62% 51.38%

Debt-to-Equity Ratio: 0.9464

Effects of additional debt:
• High leverage ratio
• Insufficient revenues to fund the
operating expenses
• Instability of cash flows
• Low investment returns
• Unsteady position of the
company
• Decrease value of company
• Bankruptcy
Effects of additional equity:
• High investment return
• Low leverage ratio
• More than sufficient funds
• High level of cash flow stability
• Stable financial position
• More chances of expansion
• Permanence of the business
2.) Assess the profitability of
Zapatoes Inc’s. What is the effect
of issuing debt to its profitability?
Effect of equity?
 Value 2013 2014 2015

Net Income 717,490.20 1,240,000.00 2,570,000.00

Amount of - 522,509.80 1,330,000.00

Change
Percent - 72.82% 107.26%

The table shows the profitability of Zapatoes Inc. in three (3)

straight years. The company is profitable; the firm was able to
generate 1,240,000 php from 717,490.20 php and the
difference in percentage is 72.82%. From 2014, the company
was able to get 2,570,000.00 php from 1,240,000.00 and was
able to gather 107.26% of change.
3.) What factors are considered in
deciding whether to take long-
term or short-term financing?
Critical analysis of the financial state of the company is
needed. We should look at the liquidity and profitability ratios of
the business to know if the business itself is capable to meet
long term or short term financial obligations.

• Purpose for which the money/capital is required

• Risk (cost, interest, possibility of not being able to meet obligations)
• Status or ability of the company to borrow and pay
4.) What financing should Anthony
Cruz take? Justify your answer.
SHORT TERM LOAN

ALEX’S 45% SHARE

LONG TERM LOAN

Why not choose short term?
Paying its obligation in a
short span of time is a bit
difficult.
Why not grab Alex's offer to
Anthony?
Anthony is not “fully” in
control of “his” own
company.
Why choose long term loan?
Anthony will not be
pressured on paying his
obligations since he has a
longer payment period.