Financial Management And Efficient Planning

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Financial management and efficient planning are important in determining the sustainability and the mission of a business. A company can know its organizational performance, financial results, and trends by using its financial statements. Conducting a ratio analysis through ratio calculation is vital. Ratios calculation is a useful tool of management because ratios are critical indicators of financial strengths and weaknesses and thus the basis of the overall situation analysis. Some of the significant financial ratios include; profitability ratios, leverage ratios, activity ratios, and liquidity ratios (Tugas & CISA, 2012). These ratios can identify financial trends for the company and can be used to make industry comparisons. Ratios…show more content…
A high value of quick ratio is positive because it shows that the company has more quick assets than current liabilities. A company with more quick assets can cover its debts without selling its capital assets that are used to generate revenue. Selling off these capital assets will reduce the company’s income and chase away investors because they view the company as incapable of paying its obligations. From the excel sheet, a ratio of 0.50 shows that Snead’s Dry Cleaning Company has less quick assets that can be converted to pay off debts. For this reason, the company can sell long-term assets when there is urgent need of money (Tugas & CISA, 2012). Fixed assets to net worth ratio Fixed assets ratio is a solvency ratio that indicates the degree to which owner’s cash is frozen in form of fixed assets such property and plant. A low fixed asset to net worth ratio shows greater solvency since more funds are available to meet the company’s obligations while a higher ratio indicates lower chances of solvency. In some case, a ratio of 0.75 is undesirable for a corporation since the company is vulnerable to solvency problems as is the case of Snead Company. The company’s ratio is 1.21, which is too high. It is recommended that Snead’s Company reduce the amount of fixed assets selling them and invest in current assets that can be used to pay off liabilities like the loan the company has. With reduction in the ratio, banks can
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