Evaluating Company 's Strengths And Weaknesses

3958 WordsFeb 25, 201716 Pages
Evaluating Company 's Strengths A lot could be learned about a business by compiling all the relevant ratios taken from the business financial statement. Ratios taken from financial statement according to Sobel, M “MBA in a nutshell” are a testament of a given organization’s solvency; which is the ability of an organization to meet its financial obligations. These obligations are efficiency and profitability. While some ratios apply across the board of an industry, they also tend to differ by industry. From the balance sheet given information, I would cull some of the following financial ratios: current, net working capital, quick, and debt-to-equity; I would…show more content…
Usually, according to Sobel, M “MBA in a nutshell”, one of the most common causes of new business failure is undercapitalization. Fledgling organization like Nano Brewery with solid product lines and good marketing efforts may nonetheless require a great deal of funding if it plans to expand. Liquidity Ratio or Quick Ratio: The liquidity ratio or quick ratio according to Sobel, M “MBA in a nutshell”, is another measure of short-term solvency, in relative terms. This is considered a conservative indicator, according to Sobel, M “MBA in a nutshell”, given that the assets represented in the numerator of the ratio do not include inventory, which is difficult to liquidate quickly. The formula that expresses this is: Liquidity ratio = Cash + accounts receivable + marketable securities divided by Current liabilities Placing the values from the balance sheet into the formula Liquidity ratio = $10,972.18 divided by $4,073 = 2.7 An organization’s quick ratio is supposed to be greater than 1.1. From the result above, we can see that we have 2.7. Debt-to-Equity Ratio: The debt-to-equity ratio according to Sobel, M “MBA in a nutshell” is a measure of longterm solvency, in relative terms. The formula that expresses this according to Sobel, M “MBA in a nutshell”: Debt-to-equity ratio = Total liabilities divided by Total shareholders’ equity Debt-to-equity ratio = $43,236 divided by $26,915 = 1.6 = 160% According to Sobel, M “MBA in a nutshell”, the
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