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Fin Results

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Submitted By ttmphl
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Interpreting Financial Results: ABC SDN. BHD ABC SDN. BHD. is a leader in “the provision of forwarding, warehousing, haulage, and air freight services” (University of Phoenix, 2011, “Director’s Report”). It is important for leadership to analyze the financial statements as stockholders and creditors will base decisions on them. Managers should understand how to calculate and interpret the short-term liquidity, efficiency, debt, and coverage ratios.
Short-Term Liquidity
Short-term liquidity ratios help key stakeholders assess whether ABC SDN. BHD can pay its short-term obligations from operating income (Parrino, Kidwell, & Bates, 2012). The current ratio is calculated by dividing current assets by current liabilities. For 2010, the company’s current ratio was 1.39, which was calculated by dividing $29,307,990 by $21,051,890. There was a decrease of 0.37 from 2009’s current ratio of 1.76. This indicates that ABC SDN. BHD has $1.39 for every one dollar in current liabilities. The current ratio has remained steady from 2009 to 2010 and thus indicates the company is able to pay its short-term obligations as they come due.
Efficiency Ratios
By measuring efficiency ratios, managers measure how resourceful the company uses its assets (Parrino, Kidwell, & Bates, 2012). The asset turnover ratio indicates the amount of sales generated for every dollar in assets. ABC SDN. BHD wants to strive for increasing the asset turnover ratio as a higher turnover shows a higher efficiency (Parrino, Kidwell, & Bates). Table 1 below summarizes the asset turnover ratio and the significant decrease from 2009 to 2010.

The 8.11 reduction may be a result of an overinvestment in of a particular asset by ABC SDN. BHD’s management (“Assessing Asset Turnover.” 2012). It is crucial for management to monitor the asset turnover ratio to help suggest improvements that help

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