Premium Essay

Fnt1-Task1

In: Business and Management

Submitted By sweetietweetie
Words 2597
Pages 11
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 determining a company’s ability to pay off short-term debt. A ratio less than 1.00 designates that a company may not be able to pay existing debt if it immediately came due. The acid-test does not allow the inclusion of inventory sales to help pay liabilities. Ratio calculations omit inventory sales before dividing current liabilities. The acid test ratio is less than the working capital ratio, this

Similar Documents

Premium Essay

Fnt1 Task1

...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...

Words: 1297 - Pages: 6