Why Smith Enterprises Must Be A Good Long Term Investment For You

1864 Words8 Pages
Good Day Mr. Masterson, I have completed a detailed analysis using the financial statements you have provided me to help determine if Smith Enterprises would be a good long-term investment for you. First, I have created a vertical analysis in which is a tool that allows me to compare the company’s financial condition and performance to a base amount. With this, I can then analyze in depth any potential success you could gain through investment in Smith Enterprises. This is an extremely useful benefit as I can view in detail the percentage of total assets Smith Enterprises inquires on a yearly basis, as well as their percentage of sales on a yearly basis. While the yearly outcome is indeed important, I will reassure you that a visual of the…show more content…
These conditions can be both favorable and unfavorable to the company, and through these ratios I can detect the favorability. Vertical Analysis- In conducting the vertical analysis of the financial statements provided, I have found a few rather unfavorable results. First, I can’t help but notice that in 2014 Smith Enterprises has a measly 19% total assets in cash, and 20% total assets in cash in 2015. This may be a negative result of the company’s confined inventory by 22% in 2014 and 30% for 2015. If inventory is not being moved, there is no opportunity for cash, therefore, the cash account is being negatively affected overall. Next, when reviewing Smith Enterprises total liability, for 2014 the company’s total assets to total liability equals 50% in 2014, and 46% percent in the year 2015. While the total liabilities decreased by a total of 4% between 2014 and 2015, the company’s total liabilities are extremely unfavorable. By this I am expressing that 46% and 50% of how Smith Enterprises pays for their assets is with debt through accounts such as accounts payable, salaries payable, and notes payable. If the company were moving out inventory at a faster rate, the higher debt percentage may be justified as the company could pay off this debt quickly, but when tied up inventory is visible this leads me to believe that the debt percentage will stay within a few
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