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Corporate Financial Statements

In: Business and Management

Submitted By henryman12
Words 1009
Pages 5
Corporate Financial Statements
Corporate financial statements provide vital information to investors and other stakeholders of a corporation or business entity. Making investment decisions based on data from these statements is standard practice for investors, creditors and others with interest in the affairs of the business. Key metrics of the financial status of a business include financial ratios which point to the profitability, solvency and other elements of growth of a company. The first exercise in this week’s assignment explores the method of calculating current assets, Shareholder’s equity, noncurrent assets and long term liabilities when values are given for inventories (840,000), total assets (2,800,000), current ratio (2.25) and debt to equity ratios (1.8). Data used is derived from the “current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable, and inventories from the December 31, 2011 balance sheet”( Spiceland Sepe & Nelson, 2011, p.162).). The second exercise measures the impact (increase, decrease or no impact) of financial action on two liquidity ratios-current and quick- and a solvency ratio-debt-to-equity ratio. Finally, the third exercise identifies and explains deficiencies in the balance sheet of the Marcus Clothing Corporation
Calculating ratios
1. Current assets
Acid –test ratio =1.2, therefore
1.2 = (Current Assets –Inventory)/Current Liabilities 1.2 = (Current Assets-840000)/ Current Liabilities
1.2* Current Liabilities +840000=Current Assets
Also, Current Ratio =2.25, therefore
2.25= Current Assets/Current Liabilities
2.25*Current Liabilities = Current Assets
Therefore, 2.25 * Current Liabilities =1.2 *Current Liabilities +840000
(2.25-1.20)Current Liabilities=840000
1.05 Current Liabilities=840000
Current Liabilities =840000/1.05=800000
Current

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