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Financial Analysis Memo

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Financial Analysis Memo

To: Riordan Manufacturing CEO

From: Accounting

Date: October 22, 2012

Re: Ratio Analysis

This memo outlines the findings to a recent horizontal and vertical analysis completed on Riordan Manufacturing. The analysis was performed in order to notify the company of prospective external interests. Users who express interest in the company are able to utilize the calculated ratios to disclose Riordan’s performance and it’s most updated position. Attached is the horizontal and vertical analysis that includes calculation of profitability, liquidity, and solvency ratios. The financial stability and health of Riordan are outline within these ratios. The liquidity ratios comprise the acid-test ratio, the current ratio, and inventory turnover and display the amount of liquid assets. Profitability ratios will focus on the company’s asset turnover, profit margin, return on assets, and its return on common stockholders’ equity. The ratio of solvency is based on debt to total assets and times interest earned. These ratios will outline facts and foreseeable trends about the company’s financial position and will reveal what users might be interested in each type of the ratio.
Riordan Manufacturing Liquidity Ratios

Below are the liquidity ratios, which “measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash” (Weygandt, Kimmel, & Kieso, 2009, p. 684). Depending on the industry averages, this tells that Riordan is able to meet their short-term obligations. For every dollar of liability, the company has $4.72 in current assets. In addition, the acid-test points out what the company has in immediate liquidity. The receivable turnover tells the average of how often the receivables are collected. This provides a measurement of how quickly the company will be able to convert

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