Fnt1 Memo Example

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|Sound Investment, Inc.| Memo To: Brian Little, President/CEO of Durable Home Goods From: , President/CEO Sound Investment, Inc. Date: 6/25/2011 Re: Durable Home Goods Brian, Attached you will find my analysis of Durable Home Goods (DHG) for fiscal year 11 and my insights on some of your strengths, weaknesses, and opportunities to drive topline sales in 2012. Current Ratio The current ratio is an indication of a company’s ability to pay current liabilities with current assets. The formula for calculating the current ratio is current assets divided by current liabilities. DHG has a current ratio of 1.69 for year 11. When compared to the current ratio of 1.83 in year 10 and industry data quartiles of 3.1, 2.1, and 1.4 this ratio…show more content…
No recommendation to management needed. Rate of return on net sales The rate of return on net sales ratio is an indication of a company’s ability to sell its goods profitably. The formula for calculating this is net income divided by net sales. DHG has a rate of return on net sales ratio of 6.33% for year 11. This compared to the rate of return on net sales of 5.68% in year 10 and the industry quartiles of 7.55%, 6.12%, and 4.20% indicates strength. Management needs to continue reducing operating expenses to improve profitability. Rate of return on total assets The rate of return on total assets ratio is an indication of a company’s ability to effectively uses its assets to generate earnings. The formula for calculating this is net income added to interest expense divided by average total assets. DHG has a current rate of return on total assets of 13.71% for year 11. This compared to the rate of return on total assets of 12.30% in year 10 and the industry quartiles of 17.2%, 12.30%, and 8.60% indicates a strength for DHG. Management needs to continue leveraging the company’s assets to generate additional earnings. Rate of return on common shareholders’ equity The rate of return on common shareholders’ equity ratio is an indication of a company’s ability to generate income for each dollar invested by its