Accounting Microline Case

As long as the current ratio, which takes inventories into account, is higher than 1, they do not experience any problems repaying their short-term liabilities. However, the quick ratio is smaller than 1 and has marginally decreased in 2011. Due to this Next Plc might have problems paying off their short-term liabilities if sales decreases in the next years.

An accounting cycle is a process, or a series of activities, that consists of collecting an organization’s transactions at the end of a reporting period to prepare essential financial statements of a business (Fleury, 2015). The accounting cycle is a strict, methodical set of rules used to ensure the accuracy and conformity of financial statements (Investopedia, 2017). The steps involved with an accounting cycle, the roles each of the step facilitate, the impact of omission, and what financial statements are assembled from the accounting cycle data.

Two-year decrease of liquidity measures including current ratio and quick ratio reveals the problems concerning company’s short-term solvency and liquidity. Butler Lumber Company’s current ratio decreased to 145.05% in 1990 from the level of 180.00% in 1988. The same decrease happened to quick ratio (decreased from 88.08% in 1988 to 66.92% in 1990). As the short-term lender, Northrop National Bank should have noticed that Butler Lumber Company’s ability to pay its bills over the short run without undue press needs to be carefully examined. The decrease of current ratio also implies the decreasing level of company’s net working capital, which is another sign of lower level of liquidity.

Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays

The findings of this report has found that the current performance of Chester, Inc. is not positive. Chester, Inc.’s liquidity ratios are steadily eroding over the three-year period. Profitability ratios are showing a trend that is slightly above industry averages, while being below their main competition each year. Solvency ratio analysis has showed the firm having sufficient leverage, but cash flow issues make us believe that acquiring more debt will not be beneficial to the company. A detailed explanation of the individual ratios used to draw these conclusions appear in the ratio analysis section of this report. Ultimately it is up to management to take action to remediate

The decline of inventory turnover presents the incresed possibility of inventory obsolescence which is likely to be assessed as higher business risk. In debts to equity part, the ratio in current year is much higher than that of preceeding year, which means the extent of use of debt in financing company is much higher than before. Pinnacle has used most of its borrowing capacity and has little cushion for addional debt.This action brought high business risk to Pinnacle. In addition, Pinnacle puchase more inventory in current year that that of preceeding year, and net sales are increasing also compared previous year. However, the net income is decreased significantly. These changes show expenses (maybe direct or indirect) have increased dramaticly. The company uses more expensive materials and labors to manufacure and sell products.

First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.

A more tell tale sign is the quick ratio, or acid test, which has increased year after year. Debt to total assets has decreased over 5% since 2001, indicating less financing of current and long term debt and more company assets. Their cash debt coverage far surpasses the ideal 20%, indicating a high level of solvency with sufficient funds and assets to satisfy all debtors. Asset turnover has more or less maintained at right around 1.6, signifying a turnover rate of just less than 180 times per year.

Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063.94 million at the end of FY2010, a 48.09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25.07% - from US$1,770.02 million at the end of FY2009 to US$2,213.72 million at the end of FY2010. Following this, the company’s current ratio declined from 1.27 at the end of the FY2009 to 1.07 at the end of FY2010. A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations.

During this time, sales increased from: $7.11 billion in 2010 to $7.99 billion in 2012. Earnings improved from $2.84 to $3.57. While the total amount of dividends rose from $1.00 to $1.72. These figures are showing how the company has been continually increasing sales, earnings and dividends over the last three years. In the future, the management predicts that their current strategy will increase returns. As, executives believe that their focus on building the brand and accounting for costs will lead to net earnings of $5.20 to $7.19 annually by

Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.

Overall the long term solvency position of the company satisfactory and less risky, because managerial policies kept the repercussion of recession ( increase in interest rate) in mind and hence reduced its reliance on debt financing This gives it a secure position from the point of view of long term creditors.

Lawsons 2010 and 2011 current ratio are above the industry average (1.8:1) however in 2012 the current ratio falls below the industry average at 1.55:1 and than again in 2013 to 1.02:1. This indicates that the company’s ability to pay its debts is

In terms of financial flexibility, a relatively high interest coverage ratio (ICR) of 36.8 supports the company’s ability to Flexibility take on more debt. Especially by comparing the ratio with its peers, such ratio seems to match with its risk aversion philosophy. Agency Cost of Debt

Consolidated Statement of Cash Flow, seen above. There's also a drastic increase in Research and Development expense as evidenced in Exhibit 2. Horizontal Analysis - Trend Percentages of the Income Statement above.  This shows that MiniScribe has good plans in building new products so they can take the lead in the market. This is also evidenced that due to rapid technological change, the US PC market is going down and MiniScribe responds by planning diversify its product lines to accommodate other market segments, like disk drives for FAX machines, laser printers, and photocopiers.