2.

Solvency
2.1 Debt ratio

Year

2012

2013

2014

Long term debt

0%

0%

0%

Long term debt/Equity

0%

0%

0%

Liabilities/Assets

10.44%

11.43%

10.90%

The liability to asset ratio increased slightly from 10.44% in 2012 to 11.43% in 2013 but
then witnessed a decline to 10.90% in 2014. BMP uses more liabilities but they are shortterm obligations plus the liabilities are just accounted for small proportion of total asset.
Moreover BMP did not use long term debt, the long-term liability to equity and long-term
debt ratio are equal to 0 over 3 consecutive years. Therefore, there exists no solvency
problem.
2.2 Coverage ratio

Year

2012

2013

2014

Interest coverage

623.32

552.62

125.59

CFO to total liabilities

3.16

0.85

2.06

CFO to capital expenditure

(7.62)

4.50

(0.84)

As mentioned before, BMP didnt use long term debt and experienced a gradual rise in
the net income, thats why the interest coverage improved in the previous years yet
decreased significantly in 2014 at 125.59 only. However, the figure shows that BMP is
capable of covering interest expense and providing protection to its creditors.
In the same period, the CFO to total liabilities reached a peak at 3.16 in 2012 but then
went through a noticeable decline to 0.85 in 2013 and rose at 2.06 the next year. The
reason of the fluctuation is mainly due to the substantial reduction then growth in CFO.
The ratio of CFO to capital expenditure also witnessed a fluctuation in the 3 year period
as the figure showed a huge rise from (7.62) in 2012 to 4.50 in the next year but went
down to (0.84) in 2014.
2.3 Summary of solvency risk
All in all, since the company did not use long term debt, therefore it hardly had solvency
risk. Moreover, the strong cash flow from operation has helped BMP strengthen its
financial capacity and reduce financial risk which makes it all the more sure to conclude
that BMP has pretty low risk of solvency; however, BMP still needs take into
consideration in the noticeable decrease in 2013 and some other ratios as well.