Maria Hernandez & Associates
Autor: Sara17 • October 28, 2018 • 819 Words (4 Pages) • 511 Views
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2.How would you report the status of the business on August 31, 2004?
Balance Sheet
USD
August 31,2004
July 2, 2004
Assets
Cash in bank
6,600
12,000
Accounts receivable
7,000
Office supplies
4,200
5,000
Equipment and software
38,000
27,000
Accumulated depreciation
(1,500)
Prepaid rent
6,000
6,000
Total Assets
60,300
50,000
Liabilities
Loan
20,000
20,000
Accrued interest
200
Accounts payable
5,500
Total Liabilities
25,700
20,000
Equity
Capital
30,000
30,000
Retained earnings
4,600
Total Equity
34,600
30,000
Total liability and owner’s equity
60,300
50,000
The balance sheet of Maria’s company on August 31 compared with that on July 2:
- Liquidity
- Current ratio = Current assets / Current liabilities = 17,800 / 25,700 = 0.69
The ratio shows that the company’s current liabilities are rising faster than its current assets thus it may have financial difficulty. Maria has to think out how to pay the account payable more slowly and get the account receivable more quickly.
- Inventory turnover ratio = Revenue/ Inventory=47,000/4,200 = 11.19
Since the company is a design company, it is good to see that the inventory turnover ratio is high.
- Total assets turnover ratio =Revenue /Total assets=47,000 /60,300 = 0.78
The total asset turnover ratio is not that high, indicating that the company has not obtained enough revenue given its total assets. So Maria should attract more clients and increase the sales to improve the business.
- Leverage
- Debt ratio = Total debt/Total assets= 25,700 / 60,300 = 42.6%
The ratio is high, showing that nearly half of the company’s total assets are generating from debt. It may be not easy for Maria to raise more funds because creditors will be concerned about the bankrupt risk of the company.
- Profitability
- Operating margin = Operating income/Revenue=4,600/47,000 = 9.8%
The company’s operating margin is low because of the high operation cost. Firstly, the leverage is high so that Maria should pay interest. Secondly, the depreciation cost of the equipment is a problem.
- ROA= Net income / Total assets= 4,600/60,300 = 7.6%
- ROE = Net income/Equity= 4,600 / 34,600 = 13.3%
ROA and ROE are not good because of the high leverage. Maria should use her capital more efficiently to obtain increase in revenues.
In conclusion, although the company has made some profit, there are still some risks. Firstly, the cash in the bank decreases quickly, there is a risk whether Maria can pay the salary and other expenses next month. Secondly, collecting $7,000 accounts receivable from customers is another challenge. Finally, the leverage of the company is high and liquidity ratios are showing the financial risks.
陈 都 17210690046
陈炜烨 17210690048
杨 昱 17210690073
张 艺 17210690078
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