Submitted By JiyalAryn

Words 2650

Pages 11

Words 2650

Pages 11

To: CEO of Company G

CC:

From:

Date: 3/1/2015

Re: Analysis of Company G Ratios

The following is the breakdown you requested on the Company G financial statements.

Current Ratio

= Current Assets / Current Liabilities

The current ratio is a representation of Company G’s ability to pay its short-term debts. In other words, the current ratio represents the number of times the company can pay its current liabilities by liquidating its current assets. To calculate current ratio, the total Current Assets divided by the total Current Liabilities of Company G. It is preferred that a current ratio is greater than 1.0, and a higher current ratio represents an increased ability to pay short-term obligations. The current ratio calculated for Company G for Year 12 is 1.77. This ratio is trending downward from the Year 11 current ratio of 1.86. A current ratio of 1.77 in Year 12 places Company G well below the first quartile ratio of 3.1 and solidly between the second and third quartile ratios of 2.1 and 1.4, respectively. This represents a weakness in the position of Company G, as even though the company is above the third quartile the trend of decline in current ratio places it in a position of potential instability. Special attention should be paid to improving the current ratio of Company G in Year 13.

Acid-Test Ratio

= Cash + Short Term Investments + Net Acct. Receivable / Average Acct. Receivable

The acid-test ratio is a representation of the ability of Company G to pay its short-term obligations from cash reserves or other accounts easily liquidated into cash, such as short-term investments and/or accounts receivable. The acid-test ratio specifically excludes inventory and other current assets not easily liquidated into cash. The calculation in this instant is (Cash + Short Term Investments + Net Accounts Receivable) / Current Liabilities. This…...

...| Company G | Memo To: Chief Executive Officer From: CC: Date: 1/7/2013 Re: Current Financial Status Analysis Current Ratio: Measures a company’s ability to pay short-term obligations. A low current ratio is an indication that a company may not be able to cover its obligations in the short-term. In year 11, Company G’s current ratio was 1.86. In year 12, Company G’s current ratio was 1.80. The year 12 information provided by the quartile industry data for home centers shows current ratios of 1.4, 2.1, and 3.1. When comparing the data from year 11, year 12, and the quartile industry data, the trend for Company G’s current ratio is decreasing. This decreasing trend is a sign of weakness. It is an indication that Company G would be less likely than other companies in the industry to be able to cover its obligations in the short-term. Acid-Test Ratio: Measures a company’s ability to pay all of it current liabilities if they came due immediately. An acid-test ratio of less than 1.00 indicates that a company may not be able to pay off current liabilities if there were to become due immediately. In year 11, Company G’s acid-test ratio was 0.43. In year 12, Company G’s acid-test ratio was 0.64. The year 12 information provided by the quartile industry data for home centers shows acid-test ratios of 0.6, 0.9 and 1.6. When comparing the data from year 11, year 12, and the quartile industry data, the trend for Company G’s acid-test ratio is decreasing. This......

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...FNT1 Task1 Western Governors University FNT1 Task1 | Financial condition of Company G memo | | | Introduction: | Below is business memorandum to the CEO of Company G. Below is a chart that full meets the expectations of the task that was give. Each ratio is explained and the formulas used are listed along with the ratio finding. 1. That information is used to understand what our current trend and if it indicates a strength, weakness, no concern. Final Justification of identification of each ratio or trend as a strength, weakness, or no concern is given. 2. No outside sources where used to find the industry data quartiles because those numbers where already given on the attached “Statement Analysis Template Sheet” and we have assumed that the facts are current. | | | Ratio and what it measure | formula for calculating | current ratio finding for year 12 | year 11 | the industry data quartiles | This ratio is Up or down from last Year | Indicated and Justification | Measures a company's ability to pay its current liabilities with its current assets. | Current Assets/Current Liabilities | | | | Decreasing | WeaknessThe reason why this is marked as Weakness is because it falls below the top industry quartile of 3.1 and the middle industry quartile of 2.1. The 1.77 is above the lowest quartile of 1.4 but since this time last year the companies current ratio was 1.86 this shows a decline and therefore based on all the information give must be......

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...MEMORANDUM To: CEO, COMPANY G RATIOS THAT MEASURE ABILITY TO PAY LIABILITIES CURRENT RATIO When evaluating the ability of a company to pay short-term obligations, the Current Ratio is one ratio that can be used. To calculate the Current Ratio the Current Assets are divided by Current Liabilities. The Current Ratio for year 12 of Company G is 1.78. For comparison, the Current Ratio for year 11 was 1.86 and the quartile data for the industry are 3.1, 2.1 and 1.4. This information shows a trend of a falling Current Ratio and a ratio that is moving out of the middle quartile towards the bottom quartile in the industry. This movement in the ratio and the relation to the industry data indicates a weakness. ACID-TEST RATIO A second ratio to help evaluate the ability of a company to pay its short term obligation is the Acid-Test or Quick ratio. To calculate the Acid-Test Ratio the sum of Cash, Short term investments, and Net current receivables are divided by Current Liabilities. The Acid-Test Ratio for year 12 of Company G is .42. For comparisons, the Acid-test Ratio for year 11 was .64 and the quartile data for the industry are 1.6, .9, and .6. This information shows a trend of a falling ratio that is now below the bottom quartile of the industry. This movement in the ratio and the relation to the industry average indicates a weakness. RATIOS THAT MEASURE ABILITY TO SELL INVENTORY AND COLLECT RECEIVABLES INVENTORY TURNOVER Inventory Turnover indicates the number of...

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...Memorandum To: Company G CEO From: ********* ******* Date: xx/xx/xxxx Re: Company G Financial Status Explanation of Ratios The purpose of this memo is to provide a brief explanation of the different ratios and trends used to analyze the current financial strength of Company G. The following information will not only provide insight into how Company G is doing, in comparison to last year, but it will also provide a cross-comparison to industry-wide benchmarks, allowing Company G to see how it measures up to its competitors. ***Many of the following ratio formulas call for dividing one financial statement category by the average number of another category. The average is found by adding the beginning and ending numbers of the given category for the period, and dividing by 2. Current Ratio - The current ratio is used to help the company assess its ability to use assets like cash, inventory and accounts receivable, to pay its short-term liabilities, such as accounts payable, wages, etc. The higher the ratio, the more likely a company is able to pay its short-term debts. This ratio can be found by dividing current assets by current liabilities. Year 12 shows Company G has a current ratio of 1.76, which is down .1 from year 11. This ranks above the first industry data quartile of 1.4, but below the second and third quartiles of 2.1 and 3.1, respectively. Because this ratio has not only declined in the last year, but is also much closer to the lowest quartile,......

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...Current Ratio: The current ratio is an indication of the company’s ability to pay its short term obligations. The formula for calculating the current ratio is Current assets ($28,065,000) divided by Current liabilities ($15,881,000). Company G has a current ratio of 1.77 for year 12. When compared to the current ratio of 1.86 for year 11 this ratio has decreased slightly. When compared to the industry data quartiles this ratio falls below the first quartile of 3.1, the second quartile of 2.1, and is slightly above the third quartile of 1.4. This ratio indicates a weakness for company G. This current ratio would indicate Company G would have a hard time paying its short term obligations. Company G should look for ways to improve in this area. Acid-Test Ratio: The acid-test ratio will tell us if Company G could pay all its current liabilities if they became due immediately. If we look at how to calculate the acid-test ratio it’s by Cash ($4,200,000) + Short-term investments ($36,000) + Net current receivables ($2,638,000) divided by Current Liabilities ($15,881,000). Company G has an acid-test ratio of 0.43 for year 12. This has slightly decreased from year 11 ratio of 0.64. When we compare this to the industry date quartiles this ratio falls below all three quartiles. First quartile of 1.6, the second quartile of 0.9, and the third quartile of 0.4. This indicates a weakness for company G and shows it would not be able to pay all its current liabilities. Company G......

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...Current Ratio: Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. Formula to calculate current ratio is as follows; Current ratio = Current Assets / Current Liabilities From the results of Company G, we can find out that company G has week liquidity position. It is due to increase in current liabilities more than current assets. Current ratio is not only declining as compared to previous year but also below industrial quartile. Current ratio of company G for year 12 is 1.77 which is lower than that of year 11 that is 1.86. When compared to industry quartile, it’s below first quartile which is 3.1 and also below second quartile i.e. 2.1, although it’s slightly above third quartile but it does not indicate stronger liquidity. Hence it indicates the weakness or threat to the company G. Acid –Test Ratio: Acid-test ratio also known as quick ratio measures the company’s ability to use its quick assets for extinguishing or retiring its current liabilities. Quick assets include cash and cash equivalents, marketable securities and account receivables. Formulas as under; Acid-Test Ratio = Current Assets – Inventory / Current Liabilities Company G has revealed weaker liquidity position in this ratio as well. As compared to previous year, acid-test ratio has been declined from 0.64 to 0.43. As compared to industry quartile, it is also below first quartile (1.6), second quartile (0.9) and third......

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...Leadership The five bases of power are: Referent, Legitimate, Reward, Expert and Coercive. Referent power is the ability or power of an individual to attract others and build loyalty. “The power derives from one person having an overall likability leading people to strongly identify with them in one form or another”. (French & Raven's, 2010) Admiration for this person may be due to a particular personality trait; this in turn, generates a chance for interpersonal influence. An example of Referent power is demonstrated when Employee 3 was selected to be the team leader on the project because of the eagerness and respect shown towards Employee 3 by their coworkers. It is said that Employee 3 is well liked, very charismatic, and optimistic, and others are drawn to their personality. Legitimate power exists when the leader has the right or authority to tell others what to do; employees are obligated to comply with legitimate directives. “Legitimate power can often thus be the acceptable face of raw power”. (Straker, 2006) This type of power is evident in multiple areas in Company A. One example of Legitimate power would be the Marketing Manager who highly encourages employees to work longer hours in order to get their work done. Other example is the Sales Manager appointing Employee 3 to lead a the sales team, even though they have not been with the company for long. Reward power is the power of a manager to offer some kind of reward to employees to......

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... Lessons from Geese 'Individual empowerment results from quality honking' Lessons from Geese provides a perfect example of the importance of team work and how it can have a profound and powerful effect on any form of personal or business endeavor. When we use these five principles in our personal and business life it will help us to foster and encourage a level of passion and energy in ourselves, as well as those who are our friends, associates or team members. It is essential to remember that teamwork happens inside and outside of business life when it is continually nurtured and encouraged. Lesson 1 - The Importance of Achieving Goals as each goose flaps its wings it creates an UPLIFT for the birds that follow. By flying in a 'V' formation the whole flock adds 71 percent extra to the flying range. Outcome When we have a sense of community and focus, we create trust and can help each other to achieve our goals. Lesson 2 - The Importance of Team Work When a goose falls out of formation it suddenly feels the drag and resistance of flying alone. It quickly moves back to take advantage of the lifting power of the birds in front. Outcome if we had as much sense as geese we would stay in formation with those headed where we want to go. We are willing to accept their help and give our help to others. Lesson 3 - The Importance of Sharing when a goose tires of flying up front it drops back into formation and another goose flies to the point position. Outcome It pays...

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...Memo To: Entrepreneur D From: Student cc: Date: Re: The financial statement evaluation is complete as agreed. Outlined in this memo is an outline of the corporate stability of Company G. Listed are 13 ratios used to determine financial strengths and weaknesses. Each ratio is individually explained so there is a clear knowledge of what the gathered numerical information implies. Lastly, the company is compared with other companies in the home improvement industry to determine if it meets market standards. Current Ratio – 1.75 The company’s has a current ratio of 1.75 placing it in 58th percentile which is an indication of weakness. The Company G’s current ratio compared to last year is on a downward trend. That means that for each dollar spent, only 75 cents can be saved. This ratio is used to establish the company’s capacity to cover short-term financial obligations. It is calculated by dividing current liabilities by current assets. A company ratio of less than one is an indicator that signals the likelihood of Company G’s inability to cover short-term debts if they became due and payable. The company with the lowest ranking was Home Depot and Company G is vaguely beating their numbers. This is a weakness for the Company G. The company’s current ratio drops beneath the first quartile of 3.1 and also under the second quartile of 2.1. Acid-test Ratio – 0.42 This is a stringent indicator calculated similarly to the current ratio......

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...SUBDOMAIN 319.1 - ACCOUNTING & FINANCE SUBDOMAIN 319.2 - INFORMATION TOOLS Competency 319.1.2: Ratios - The graduate determines the financial condition of a firm using financial ratios and other financial data. Competency 319.2.1: Technology Tools - The graduate uses information technology tools for specified business purposes. Objectives: 319.1.2-04: Determine a firm’s financial condition by calculating and benchmarking specified ratios against other companies in the industry. 319.2.1-01: Use the Internet to gather information on a specified business topic. 319.2.1-02: Produce business letters or memorandums using a word processing application. 319.2.1-03: Develop a spreadsheet report that solves a business problem. Introduction: Company G operates a small chain of wholly owned home centers selling to consumers and contractors. Sales volume varies among the individual stores and ranges between $11 million and $20 million per year. The company is organized as a corporation and does not operate as a sub-chapter S corporation. Given: Consolidated financial statements for Company G are shown on the attached “Statement Analysis Template.” • Sales volume shown is net sales. • During Year 12 60% of net sales were on a credit basis. • Inventory is stated at cost on a first-in, first-out basis. • Depreciation expense totaled $1,875,000 for Year 12 and $1,644,000 for Year 11. • Depreciation expense is not shown as a separate item on the income......

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...memo Comments: Dear Mr. CEO of Company G As per your request I have done an evaluation of the company G financials, comparing Fiscal year 11and Fiscal year 12. I have chosen to evaluate the financials through thirteen (13) key financial Ratios. Below, you will find all thirteen (13) Ratios along with an explanation of those ratios, an evaluation and justification of all thirteen (13) ratios as a strength, weakness or satisfactory condition, and I will compare (where possible) these ratios to available information from other companies within the home center industry. Any and all financial information of Home Depot, Lowes and Orchard Supply Hardware Stores was retrieved from either www.nasdaq.com, or www.morningstar.com and I did use data sets from their fiscal year 2012 numbers. The evaluation of all thirteen (13) ratios is as follows. Current Ratio: For fiscal year 12 the current ratio is 1.77, and in year 11 it was 1.86. In my opinion, this ratio is a weakness, and should be watched as it shows a downward trend from the previous fiscal year. While any ratio over one represents that the company could repay their debt if required to, it is not as stringent of an indicator as the acid test ratio. It does take into account inventory which is up approximately 32 percent, and even with the increase in inventory and an increase in net sales, gross profit and Net Earnings, the current ratio shows a decrease year over year. In comparison with comparable companies such as Home......

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...SUBDOMAIN 319.1 - ACCOUNTING & FINANCE SUBDOMAIN 319.2 - INFORMATION TECHNOLOGY Competency 319.1.3 Capital Budgeting Analysis - The graduate correctly applies time value of money techniques and techniques that ignore present value for capital investment decisions. Competency 319.2.1 Technology Tools - The graduate uses information technology tools for specified business purposes. Competency 319.2.5 Information Management - The graduate selects appropriate technology applications to manage information and make decisions in given situations. Objectives: 319.1.3-01: Calculate net present value based on a given set of facts. 319.1.3-02: Apply the results of a net present value calculation to a given decision situation. 319.1.3-03: Calculate internal rate of return based on a given set of facts. 319.1.3-04: Apply the results of an internal rate of return calculation to a given decision situation. 319.1.3-05: Calculate the period of time required to recoup the money expended for new equipment in a given situation. 319.1.3-06: Calculate the accounting rate of return based on a given set of facts. 319.1.3-07: Explain the relationship of the accounting rate of return to the internal rate of return for the same capital investment alternative. 319.1.3-08: Calculate net cash flow in a given situation. 319.1.3-09: Explain the impact of depreciation on net cash flow. 319.1.3-10: Explain the role of the weighted average cost of capital in capital budgeting analysis. 319.2.1-04: Produce a......

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...Memorandum To: CEO of Company G From: Jane Doe Date: [ 6/23/2014 ] Re: Financial Analysis This memorandum contains an analysis of Company G’s financial statements from the years 2011 and 2012. I will discuss the ratios and trends for the company and how it compares to industry averages. Current Ratio: 1.80 (decreased from 1.86 in 2011) The current ratio for Company G is a weakness, the quartile industry data shows that the company is on the low side with 1.80 and the lowest at 1.40, there was a decrease in current ratio from the previous year as well. Although the current ratio is within the industry data it is not fully utilizing its assets effectively. Acid-Test Ratio: .43 (decreased from .64) This ratio shows a cause for concern, therefore classified as a weakness. The industry data is at .6 to 1.6 and shows that the ability for Company G to pay its current liabilities at once, if necessary, is low and could be a high risk for investors. Inventory Turnover: 5.2 (decreased from 6.1) Inventory turnover for Company G is a weakness. The industry data shows the lowest number at 8.3 and the company is substantially lower at 5.2. Company G also shows a decrease from the previous year. Accounts Receivable Turnover: 30.4 (decreased from 32.2) The ability to collect cash from the credit customers is a weakness. The industry data is 31.4 to 35.2, although it is not substantially low it has potential to drop even lower if not monitored and improved upon. Days’......

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...Financial Statement Analysis FNT1: Financial Statement Analysis Task 319.1.2-04, 2.1-01-03 April 1, 2012 MEMORANDUM TO: CEO FROM: RE: Ratio Analysis DATE: April 1, 2012 ______________________________________________________________________________ I have been asked to compare and analyze the rations of Company G for the previous year as well as the industry standards. • Current Ratio: This ration is the calculation of current assets divided by total current liabilities. The current ratio measures the degree to which current assets can be used to pay current debt obligations. In the case of company G this ratio is 1.78 and this is an area of weakness. The current ratio has decreased from year 11 to year 12, is well below two of three industry quartiles, and is an area of focus for improvement. • Acid Test Ratio: This ratio reflects the company’s ability to use its cash and assets easily liquidated or converted into cash to pay all of the current liabilities or obligations. The calculation comes by the addition of cash, short-term investments and current receivables and dividing the sum by the total amount of liabilities. A total above one would indicate that the company has the ability to cover all its liabilities immediately. With the current ratio of .42, this is also an area of weakness for company G. The ratios has fallen from .64 over the past year to .42 this year and is below the lowest quartile of .60 and......

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