FNT Task1

1821 WordsNov 2, 20148 Pages
MEMORANDUM Date: November 9, 2013 To: Chief Executive Officer From: RE: COMPANY G – FINANCIAL ANALYSIS YEAR-12 CURRENT RATIO The Current Ratio is used to identify whether or not a company can pay its current obligations. This ratio takes into consideration the current assets and current liabilities from the balance sheet and measure the company’s ability to pay their short-term liabilities. In most cases higher the ratio the more able the company is to paying their current obligations and is much more desirable. The Current Ratio calculation is as follows: Current Ratio equals Current Assets divided Current Liabilities. Company G has a Current Ratio for YR12 of 1.77. Comparing YR12 to YR11 the company’s Current Ratio…show more content…
The 36.51 number is well above the 75th quartile for the industry. I believe this result to be a strength, however, I do recommend additional analysis in this area be supported again, too high a number could mean that a lack of debt exists. RATE OF RETURN ON NET SALES Rate of Return on Net Sales is used to measure how much income is being produced for each dollar of sales. It is used to determine its profit margin. If you analyze Net Income to Net sales information the result is a percentage rate that shows the profit margin. The formula to determine this ration is: Rate of Return on Net Sales equals Net Income divided by Net Sales. A high or rising ratio is desirable, while the reverse is also true. Comparing Company G’s Rate of Return on Net Sales for YR11 was 5.43% and YR12 was 5.43% remaining consistent in during this period. The 5.43% result places Company G slightly lower than the median and above the 25th quartile as compared to the industry. There should be no concern; these results are satisfactory for Company G. RATE OF RETURN ON TOTAL ASSETS The Rate of Return on Total Assets is the ratio that shows the earnings of a company including interest expense and taxes compared to total assets. This ratio determines how well an organization is utilizing its assets to create earnings before interest and taxes are paid. A higher measurement is desirable and shows that the

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