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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

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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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Average Net-Receivables $3,037,333.50 11 102,976 2,695,342 2,798,318
Riordan Manufacturing Profitability Ratios
The profitability ratios shown below provide the measurements to the
company’s earning power and success. It shows the company’s operating
success, which affects the company’s liquidity position, their ability to obtain
financing, and their operational effectiveness. Therefore, this is important to
both internal and external stakeholders such as management, shareholders,
creditors, and investors (Weygandt, Kimmel, & Kieso, 2009). Depending upon
the organization’s goals and industry standards, these ratios indicate the
company is profitable.
Profitability Ratio 2011 Results Calculations
Asset Turnover 1.62 Times 1.620 Asset Average
Net Sales $66,608,660 10 $47,409,137 $41,117,317.50
Average Asset $41,117,318.50 11 $34,825,498
Profit Margin 5.0% 0.050
Net income $3,310,662
Net sales $66,608,660
Return on Assets 8.1% 0.081 Asset Average
Net income $3,310,662 10 $47,409,137 $41,117,317.50
Average Asset $41,117,318.50 11 $34,825,498
Return on Common Stockholders' Equity 11.4% 0.114 Common Stock. equity
Average
Net Income $3,310,662 10 $29,055,488 $29,055,488.00
Preferred Dividends(minus) $0 11 $29,055,488
Average Common Stockholder's Equity $29,005,488
Riordan Manufacturing Solvency Ratios
The solvency ratios measure the company’s ability to survive. This measures the
company’s ability to pay interest and repay face value of debt at maturity, used

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