Difference Between The Ratio And The Dividend Ratio

Although the company seems to be profitable, it has faced shortage of cash. It happened due to increase in Accounts Receivable as well as Inventories. On the other hand, Accounts Payable does not increase that rapidly and difficulties regarding cash collection become evident. Furthermore, the cash collection cycle becomes larger (59 days in year 2003, while more than 70 in year 2006).

In order to confirm the accounts receivable balances, I decided to use positive confirmations since this was my first time auditing the company and the collateral for the loan would be the receivables. The confirmations helped to verify the accuracy and existence of the accounts. I also calculated the Receivables Turnover Ratio in order to better evaluate the overall success of collection on accounts. The sample size that I chose was determined by the factors of tolerable misstatement, inherent risk, control risk, achieved detection risk

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.

Now, looking at the uncollected balances schedules as of the end of March and June, do these schedules properly measure customers’ payment

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.

All of these measures are consistent with the idea that Medtronic is able to produce cash to meet debts as they come due. If the current and quick ratio proved that the company was carrying a large percentage of current assets as compared to current liabilities, and if the debt didn 't make up a majority of the stockholder 's equity, the ranking would have been higher.

The Lawsons’ efficiency ratios are another section the bank will find troubling. The company’s age of payables has nearly tripled over the last four years. This can be detrimental to the company’s image and reliability including their reliability toward the bank if granted the loan. Along with increasing age of payables is increasing age of receivables and age of inventory. Indicating that Mr. Mackay is taking longer to collect his receivables and that he has purchased too much inventory. Too much inventory results can result in further issues

When combining the figures for ROE, ROA and the DuPont analysis it appears that the company is using leverage favourably. ROE is greater than ROA and assets are greater than equity. This is a positive sign for shareholders as it suggests a good investment return in a company that is managing its shareholder equity well (Evans & McDowell, 2009).

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

This is said because the return on assets ratio is low. When it is low the company uses less money on more investment. The profit margin is low as well calculated at only .6% showing that Kudler Foods had a low profit at that reporting time.  The debt to total assets ratio was .28%, which showed the company is healthy. The times interest earned ratio was 9.8%, which backs up claims of financial health. The solvency ratio shows Kudler Foods can pay back long-term obligations. Each ratio has different users interest in mind. Return on common stockholder’s equity is defined as Net Income / Total Capital, and Return on Common Stockholders’ Equity: 676,795 / 1,928,960 = 35.09% Return. Here is a comparison of this (2003) information to the same information from last years’ (2002) records to begin to determine a trend.

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

The liquidity ratios of the firm are slightly below the industry averages. This is due to inventory and accounts receivable making up a significantly larger portion of the current assets than cash and marketable securities. This may be indicative of a problem with inventory management and/or collection on accounts.

Starbucks Corps had its gross account receivables for the year 2015 increase by 14.44% which led to its net receivables increase by $88,000,000 which translates to an increase of 13.95% of the net account receivables. This was followed by an increase in doubtful debts through the previous year by 6.12% to %6,700,000 from the ear 2014. This is due to the increase in the number also sales which led to the increase in account receivables and also doubtful debts in 2015. The risk that the company undertook also increases in line with the increase in account receivables.

Receivables Turnover: This shows the degree of realization in accounts receivables. Company N has a lower turnover rate, a lower rate implies that receivables are being held longer and the less likely they are to be collected. Also there is an opportunity cost of tying up funds in receivables for a long period of time. Company M is 29 times higher than company N.

Generally speaking, the shorter of the A/R turnover in days, the better efficiency of current capital. But the data of this firm is higher than the industry average level, it indicates there is an inefficient use of current capital and a problem of management, especially in 2001.But it started dropping dramatically in 2002 which reflects an obviously improvement of management.