...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, these numbers indicate a small, but growing, weakness, in regards to short-term solvency. Acid-test Ratio – This ratio is similar to the current ratio, in that it is used to determine a company’s ability to pay its short-term liabilities, except that inventory is excluded when figuring into the company’s assets. To solve for the acid-test ratio, add cash, accounts receivable and short-term...
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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 listed...
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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 the...
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...FNT1 Task 1 To: CEO Company G RE: Company G ratio analysis This report is a comparison of Company G’s ratios of years 2011 and 2012 and the industry standard. The ratio analysis is accurate to Company G’s data and the recommendations are the opinion of the analysis. 1. Current Ratio: Company G is showing as an emerging threat in this ratio. This ratio measures a company’s ability to pay short-term obligations. Company G went from 1.86 to 1.77. Even though this ratio is above one quartile industry it is below the standard current ratio trend compared to Home Centers Retail Benchmarks of 1.9. The higher the ratio the higher the ability Company G has the ability to cover a debit. This ratio is above the quartile industry data 2 benchmarks of 1.4 and 2.1. 2. Acid- Test Ratio: Company G is showing an emerging threat for this ratio. This ratio determines whether Company G has enough short-term assets to cover its immediate liabilities without selling inventory. Usually anything below 1 means the company can’t pay their current liabilities. Company G went from 0.64 in 2011 and 0.43 in 2012. According to Home Center Debt to Worth Benchmarks the standard industry is 1.5. This ratio fell below the quartile industry data of 1.6,0.9 and 0.6. 3. Inventory Turnover: Company G is showing an emerging threat in this ratio declining from 6.1...
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