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Maria Hernandez Case

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MARIA HERNANDEZ VAN NESS TEAM 10 The Story: Maria Hernandez & Associates is a company that started its business with a cash deposit. On June 20,2004 Maria Hernandez transferred all her savings of $30,000 into a new Bank account under her company’s name, two days later she transferred another $20,000 which she had borrowed from her father on a 6% p.a. interest rate. Thus, with an amount of $50,000 in its bank account Maria Hernandez and Associates was ready to start its life in the Webpage designing sector. After the Bank account transactions, Maria Hernandez quickly took care of the initial expenses that included pre-paid rent for the new office, giving a security deposit for the same, buying used computers and software from her …show more content…

The company is keeping 9.8 cents of sales as earnings for every dollar that the company earns. It is a good sign because the company was able to recoup the initial fixed costs and also showed a profit in the books within 2 months, on the other hand the usual trend for web-page design companies to show a profit is 1-2 years. Debt to equity ratio indicates extend to which the business relies on debt financing. As we know, Maria Hernandez borrowed $20,000 from her father at 6% interest rate and invested $30,000 cash from her own savings. In addition, the company made revenue of $40,000 in cash that helped to cover all the expenses and operational purchases. So, we can conclude that the company is growing on cash mainly and in the tech industry this ratio is bound to go down, because once the assets [computers and software] are acquired there is no need to take on debt to grow the company, as the growth can come from the revenue itself. On an average computer companies have a Debt to Equity ratio of under 0.5 Current ratio that shows the ability of the company to pay off its liabilities at a given period of time is the only point of concern. As a rule the acceptable figure is between 1 and 2, in our case we have 4.17, what means that Maria Hernandez can pay off her loan with interest however, she has some excessive cash on hand what indicates inefficient management of funds. Suggestions: We would first like to address the matter of treating the Interest and

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