FNT Task 1 Essay Example
Re: Company G Financial Status
Explanation of Ratios
Below please find a brief explanation of the different ratios used to analyze the current financial status of Company G.
Current Ratio: Current ratio helps the company assess its ability to use assets like cash, accounts receivable, inventory and the ability to pay short term liabilities as the accounts payable and wages. The ratio can be found by dividing the current assets /the current liabilities. Year 12 shows a ratio of 1.78 with year 11 a ratio of 1.86. Year 12 is down from year 11. The industry is 2.1 so year 12 has declined from the previous year and is near the lower quartile which means there is a weakness. There is a showing of declining trending.
Acid-test Ratio: Acid-Test ratio is similar to current ratio except that inventory is excluded when determining the company’s assets. The ratio is found by adding, cash, short term investments, and account receivables net and divide that by the current liabilities. Year 11 showed .64 and year 12 shows .43 which is a significant decline. In year 11 the company was near the lower quartile of .6 and this time it has gone even lower showing a greater weakness of the company. This is a showing a decline trend.
Inventory Turnover: The inventory turnover ratio determines how quickly the company is turning over its inventory. The higher the number the faster the company is moving the product. This ratio is determined by taking the cost of goods sold and dividing it by the average inventory. Year 12 shows an Inventory turnover of 5.23 which is down from Year 11 of 6.1. The lower industry quartile is 8.3 which means that year 11 and 12 have been significantly lower. Company G is showing a significant downward trend in inventory turnover. This is showing a definite weakness for the company.
Accounts Receivable Turnover: This ratio determines how efficient the company is to collecting debts from its customers. The ratio compares credit sales to the average
Explanation of Ratios
Below please find a brief explanation of the different ratios used to analyze the current financial status of Company G.
Current Ratio: Current ratio helps the company assess its ability to use assets like cash, accounts receivable, inventory and the ability to pay short term liabilities as the accounts payable and wages. The ratio can be found by dividing the current assets /the current liabilities. Year 12 shows a ratio of 1.78 with year 11 a ratio of 1.86. Year 12 is down from year 11. The industry is 2.1 so year 12 has declined from the previous year and is near the lower quartile which means there is a weakness. There is a showing of declining trending.
Acid-test Ratio: Acid-Test ratio is similar to current ratio except that inventory is excluded when determining the company’s assets. The ratio is found by adding, cash, short term investments, and account receivables net and divide that by the current liabilities. Year 11 showed .64 and year 12 shows .43 which is a significant decline. In year 11 the company was near the lower quartile of .6 and this time it has gone even lower showing a greater weakness of the company. This is a showing a decline trend.
Inventory Turnover: The inventory turnover ratio determines how quickly the company is turning over its inventory. The higher the number the faster the company is moving the product. This ratio is determined by taking the cost of goods sold and dividing it by the average inventory. Year 12 shows an Inventory turnover of 5.23 which is down from Year 11 of 6.1. The lower industry quartile is 8.3 which means that year 11 and 12 have been significantly lower. Company G is showing a significant downward trend in inventory turnover. This is showing a definite weakness for the company.
Accounts Receivable Turnover: This ratio determines how efficient the company is to collecting debts from its customers. The ratio compares credit sales to the average