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

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

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

Related

- Better Essays
## Ratio Analysis in Decision Making for Health Care Organization

- 841 Words
- 4 Pages

Interpretation: 53% of the total assets are financed through debts; the remaining 39% is financed through equity.

- 841 Words
- 4 Pages

Better Essays - Decent Essays
## ACC 201 Final Project Part II Bank Memo

- 955 Words
- 4 Pages

Quick ratio is another measure of liquidity. In quick ratio we consider only liquid assets and its standard ratio is 1:1. Quick ratio of Peyton Approved is 7.63. Thus, there is no doubt that the company has got excellent liquidity. Company has enough liquid assets to pay off current liabilities.

- 955 Words
- 4 Pages

Decent Essays - Better Essays
## Tootsie Roll Industries Inc: Proposal to Increase Borrowing

- 1155 Words
- 5 Pages

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

- 1155 Words
- 5 Pages

Better Essays - Decent Essays
## Cango Financial

- 1127 Words
- 5 Pages

The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future

- 1127 Words
- 5 Pages

Decent Essays - Better Essays
## Finance 382 Complete Course Project

- 3393 Words
- 14 Pages

3. Current Ratio: Take current assets over/divided by current liabilities for this straight forward ratio. Only main drawback is that this ratio excludes inventory, but the reason for that is because a lot of companies have difficulty with converting their inventory into cash. This can also lead to analysis being over or understated. This ratio, like the quick ratio/Acid Test, is an exceptional ratio for determining if a company can handle their short-term obligations.

- 3393 Words
- 14 Pages

Better Essays - Decent Essays
## Patton-Fuller Hospital Essay

- 915 Words
- 4 Pages

There is a essential use and limitations of financial ratio analysis, One must keep in mind the following issues when using financial ratios: One of the most important reasons for using financial ratio analysis is comparability and for this, a reference point is required. Usually, financial ratios are compared to historical ratios of the business itself, competitor’s financial ratios or the overall ratios of the industry in question. Performance may be adjudged as against organizational goals or forecasts. A number of ratios must be analyzed together to get a true and reliable picture of the financial performance of the business. Relying on each ratio

- 915 Words
- 4 Pages

Decent Essays - Better Essays
## Financial Performance Of Jb Hi Fi Limited

- 1732 Words
- 7 Pages

This ratio is similar to current ratio, except that it excludes inventory from current assets. Inventory is subtracted because it is considered to be less liquid than other current assets, that is, it cannot be easily used to pay for the company’s current liabilities. A company having a quick ratio of at least 1.0, is considered to be financially stable. It has sufficient liquid assets and hence, it will be able to pay back its debts easily (Qasim Saleem et al., 2011).

- 1732 Words
- 7 Pages

Better Essays - Decent Essays
## At&T Financial Analysis Essay

- 1879 Words
- 8 Pages

The analysis will be base on the most important ratios as, Liquidity, Profitability, and Solvency Ratios.

- 1879 Words
- 8 Pages

Decent Essays - Better Essays
## Sports Direct Financial Analysis Essay examples

- 1587 Words
- 7 Pages

The Quick Ratio also known as Acid Ratio is used by firms to determine liquidity position. It explains if the firm is able to pay all of their current debt liabilities. (Dyson, 2010) The graph above illustrates that over the period from 2007 to 2011 quick ratio was not more that 1, which means that their debts might not be covered all. The graph also indicates that a peak was in 2011.

- 1587 Words
- 7 Pages

Better Essays - Better Essays
## Financial Ratios Analysis and Comparison Paper

- 1478 Words
- 6 Pages

These ratios help company in determining its capability to pay short-term debts. Liquidity ratios inform about, how quickly a firm can obtain cash by liquidating its current assets in order to pay its liabilities. General liquidity ratios are: current ratio and quick ratio. Current ration can be obtain by dividing company’s current assets by its’ current liabilities. Generally a current ratio of two is considered as good (Cleverley et al., 2011). Quick ratio also known as acid test determines company’s liabilities that need to be fulfilled on urgent basis. Quick ratio can be obtained by dividing quick assets by current liabilities. Quick ratio is considered as stricter because it excludes inventories from current assets. Generally a quick ratio of 1:1 is considered as good for the company. Higher quick

- 1478 Words
- 6 Pages

Better Essays - Better Essays
## Compare the financial situations of two companies.

- 2952 Words
- 12 Pages

These numbers come out to be lower than what is considered average for a normal manufacturing company in which a satisfactory current ratio is 2.0 while a good quick ratio is considered 1.5. However according to my research on the industry those numbers seem to be the norm.

- 2952 Words
- 12 Pages

Better Essays - Better Essays
## Financial Ratio Analysis Essay

- 1420 Words
- 6 Pages

Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.

- 1420 Words
- 6 Pages

Better Essays - Good Essays
## Colgate Palmolive Financial Analysis

- 967 Words
- 4 Pages

The quick ratio reflects on a company’s ability to meet its current liabilities without liquidating inventories that could require markdowns. It is a more stringent test of liquidity than the current ratio and may provide more insight into company liquidity in some cases. For Colgate-Palmolive, the quick ratio has declined from 0.73 in 2008 to 0.58 in 2010. While this does not necessarily mean a problem, a higher current ratio and quick ratio analysis will mean that the company will not have difficulty in meeting its short-term obligations from its operations and not by liquidating its assets.

- 967 Words
- 4 Pages

Good Essays - Decent Essays
## Essay about Evaluating A Company's Capital Structure

- 1000 Words
- 4 Pages

You can make use of three different ratios to evaluate company and measure its financial strength. Two of the ratios viz. debt and debt-equity ratios are very common measurements. The third one, capitalization ratio, gives a proper insight in evaluating the company’s capital structure.

- 1000 Words
- 4 Pages

Decent Essays - Better Essays
## Eli Lilly and Company Analysis

- 946 Words
- 4 Pages

The quick ratio of 1.46 is a further analysis into the actual monetary values that are highly liquid and excluding fixed assets as part of the assets. The CFO/Avg. current liabilities also show a healthy 73%, 28% in 2004, on average of which is still higher than the industry.

- 946 Words
- 4 Pages

Better Essays