ACC 291 Week 5 Riordan Manufacturing Ratio Analysis Memo 2011 income statement

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Ratio Analysis Memo-Riordan Manufacturing

Ratio Analysis Memo Resource: Virtual Organizations Click the Virtual Organization link on the

student website to access the Virtual Organizations. Select the Virtual Organization assigned to

your team, by the Instructor on week three. Access the information contained in your

organization’s balance sheet and income statement to calculate the following:

• Liquidity ratios

o Current ratio o Acid-test, or quick, ratio o Receivables turnover o Inventory turnover

• Profitability ratios

o Asset turnover o Profit margin o Return on assets o Return on common stockholders’ equity

• Solvency ratios

o Debt to total assets o Times interest earned

Show your calculations for each ratio.

Create a horizontal and vertical analysis for the balance sheet and the income statement.Write a

350- to 700-word memo to the CEO of your selected organization in which you discuss your

findings from your ratio calculations and your horizontal and vertical analysis. In your memo,

address the following questions:• What do the liquidity, profitability, and solvency ratios reveal

about the company’s financial position? • Which users may be interested in each type of ratio? •

What does the collected data reveal about the company’s performance and position?

Financial Analysis Memo

To: Riordan Manufacturing CEO

Re: Ratio Analysis

This memo outlines the findings to a recent horizontal and vertical analysis

completed on Riordan Manufacturing. The analysis was performed in order to

notify the company of prospective external interests. Users who express interest

in the company are able to utilize the calculated ratios to disclose Riordan’s

performance and it’s most updated position. Attached is the horizontal and

vertical analysis that includes calculation of profitability, liquidity, and solvency

ratios. The financial stability and health of Riordan are outline within these

ratios. The liquidity ratios comprise the acid-test ratio, the current ratio, and

inventory turnover and display the amount of liquid assets. Profitability ratios

will focus on the company’s asset turnover, profit margin, return on assets, and

its return on common stockholders’ equity. The ratio of solvency is based on

debt to total assets and times interest earned. These ratios will outline facts and

foreseeable trends about the company’s financial position and will reveal what

users might be interested in each type of the ratio.

Riordan Manufacturing Liquidity Ratios

Below are the liquidity ratios, which “measure the short-term ability of the

company to pay its maturing obligations and to meet unexpected needs for

cash” (Weygandt, Kimmel, & Kieso, 2009, p. 684). Depending on the industry

averages, this tells that Riordan is able to meet their short-term obligations. For

every dollar of liability, the company has $4.72 in current assets. In addition, the

acid-test points out what the company has in immediate liquidity. The receivable

turnover tells the average of how often the receivables are collected. This

provides a measurement of how quickly the company will be able to convert

company assets into cash. These types of ratios are used by many external

organizations, such as those used for obtaining loans or a line of credit.

Liquidity Ratio 2011 RESULTS Calculations

Current Ratio 4.72:1 4.72

Current assts $17,377,957

Current Liabilities $3,685,152

Acid-Test/Quick Ratio 1.90:1 1.90 Note receivables Account receivables Total

Cash $3,725,406 $84,255 $3,192,094 $3,276,349

Short term investments $0

Receivables (net) $3,276,349

Current Liabilities $3,685,152

Receivables Turnover 21.9 Times 21.9 Note receivables Account receivables

Total

Net Credit Sales $66,608,660 10 84,255 3,192,094 3,276,349

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Ratio Analysis Memo-Riordan Manufacturing Ratio Analysis Memo Resource: Virtual Organizations Click the Virtual Organization link on the student website to access the Virtual Organizations. Select the Virtual Organization assigned to your team, by the Instructor on week three. Access the information contained in your organization's balance sheet and income statement to calculate the following: ? Liquidity ratios o Current ratio o Acid-test, or quick, ratio o Receivables turnover o Inventory turnover ? Profitability ratios o Asset turnover o Profit margin o Return on assets o Return on common stockholders' equity ? Solvency ratios o Debt to total assets o Times interest earned Show your calculations for each ratio. Create a horizontal and vertical analysis for the balance sheet and the income statement.Write a 350- to 700-word memo to the CEO of your selected organization in which you discuss your findings from your ratio calculations and your horizontal and vertical analysis. In your memo, address the following questions:? What do the liquidity, profitability, and solvency ratios reveal about the company's financial position? ? Which users may be interested in each type of ratio? ? What does the collected data reveal about the company's performance and position? Financial Analysis Memo To: Riordan Manufacturing CEO Re: Ratio Analysis This memo outlines the findings to a recent horizontal and vertical analysis completed on Riordan Manufacturing. The analysis was performed in ...
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