Fnt1 Essay

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1. & 2. For Company G, We will be assessing each ratio as a: strength, no concern or as a weakness. A. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Company G has a current ratio of 1.8 for year 12. When the current ratio of 1.8 for year 12 is compared to year 11’s ratio of 1.86, we see this ratio has declined slightly. When compared to the industry quartiles this ratio falls below the first quartile of 3.1, falls below the second quartile of 2.1, and above the third quartile of 1.4. This is an area of weakness for Company G and shows some reason to be concerned. They could be investing the excess money into other areas. Too much cash on hand is not a bad thing, but it is if you…show more content…
It takes a smaller amount of time for the inventory to turnover which is great! D. Accounts Receivable Turnover: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. This ratio basically measures how efficiently a firm uses its assets. Company G has an a/r turnover rate of 30.6 for year 12. Company G has an a/r receivable rate of 30.6 for year 12. When the current ratio of 30.6 for year 12 is compared to year 11’s ratio of 32.2, we see this ratio has declined slightly. When compared to the industry quartiles this ratio falls below the first quartile of 35.2, falls below the second quartile of 33.5, and below the third quartile of 31.4. This ratio indicates this is simply an area where Company G needs improvement with their ability to lend credit to its clients. The lower this number is the lower the amount of money is owed to Company G by its customers. You also do not want this number to be too small because it may mean you have too strict of credit policies. Generally between 40 and 50 is a prime place to be. This is a weakness of company G, where they need improvement. E. Day’s Sales in Receivables: Receivables are the money owed to a firm by its customers. For year 12 we received a ratio of 11.9, this is the number of days that it takes to collect on sales for Company G. Company G has a rate of 11.9 for year 12. When the current ratio of 11.9

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