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Accounting & Finance, Information Tools - Essay Example

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Accounting & Finance, Information Tools

The acid test ratio declined from 0.64 in 2011 to 0.43 in 2012. This indicates company weakness and implies that the company had fewer current assets to meet creditor’s obligation. Additionally, the inventory turnover decrease from 6.1 in 2011 to 5.2 in 2012, this indicates company weakness because more of its cash had been tied up in stocks. In addition, account receivable turnover decreased from 32.2 to 30.5 in 2012, this indicates company weakness. On the contrary, day’s on sales receivable turnover increased from 11.1 to 12.0 in 2012. This indicates company strength in colleting its account receivable within a schedule time (Stickney, 2010). On the contrary, the debt ratio increased from 28.34 to 29.54% in 2012 this indicates no concern. However, management should to reduce debt ratio because it may exposes the company to leverage risk (Ehrhardt & Brigham, 2011). In addition, times interest-earned ratio increased from 31.12 to 35.55 indicating companies’ strength. On the contrary, the rates of return on net sales increased from 6.12 to 6.21 this also indicated company strength. Connectively, the rate of return on total assets indicated company strength by increasing significantly in 2012....
Additionally, the acid test ratio was computed by adding cash, short term investment and account receivable and then dividing the sum with the short term investments. This ratio indicated weakness of company G because it decreased from 0.64 to 0.43.This implies that company G had few current assets

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to meet its short term obligations (Horngren & Harrison, 2009). Additionally, the turnover ratio was computed by dividing the net credit sales with net receivable. This ratio displayed company weakness in managing its inventories. Connectively, account receivable ratio was calculated by dividing net sales with average receivable. Whereby, a decrease in account receivable turn over ratio was an indication of company weakness in collecting its account receivables (Ehrhardt & Brigham, 2011). Connectively, sales receivable turnover ratio increased slightly. Therefore, no concern was needed because company G had strong ability of collecting account receivables from its debtors. In above connection, debt ratio of G Company was computed by finding the total current assets divided by the total liabilities. This ratio displayed weakness of company G because it decreased from 28.34 to 29.54 in 2012. This means that company G was under a high exposure of leverage risk. On the contrary, times interest ratio was determined by dividing the EBIT by interest expenses. The ratio indicates company strength because an increase in times interest ratio is an indication that company has strong ability of repaying its loans and interest attached (Stickney, 2010). The rate of return computed by taking into account amount of investments and dividends dividend by total cost incurred. The ratio

Summary

Explaining each ratio trend whether the ratio or trend indicates strength of the company; a likely weakness, threat, or emerging problem; or a satisfactory condition that management should not view as a strength or weakness …
Author : odickinson
Accounting & Finance, Information Tools essay example
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