Question

Access the information contained in your selected organization’s balance sheet and income statement to calculate the following:
- Liquidity ratios
o Current ratio
o Acid-test, or quick, ratio
o Receivables turnover
o Inventory turnover

- Profitability ratios
o Asset turnover
o Profit margin
o Return on assets
o Return on common stockholders’ equity

- Solvency ratios
o Debt to total assets
o Times interest earned

Show your calculations for each ratio.
Create a horizontal and vertical analysis for the balance sheet and the income statement.
Write a 350 word memo to the CEO of your selected organization in which you discuss your findings from your ratio calculations and your horizontal and vertical analysis. In your memo, address the following questions:
• What do the liquidity, profitability, and solvency ratios reveal about the financial position of the company?
• Which users may be interested in each type of ratio?
• What does the collected data reveal about the performance and position of the company?

Solution Preview

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MEMORANDUM
TO: The CEO, Huffman Trucking
FROM:
DATE: November 30, 2014
SUBJECT: Ratio, Vertical and Horizontal Analysis of the Company’s Financials
The purpose of this memo is to bring to your attention the findings of the ratio, vertical and horizontal analysis that I performed on the company’s financial statements. My findings show that the company’s performance has improved significantly.
1. What the ratios reveal about the financial position of the company
Liquidity ratios
These ratios reveal that the company’s ability to cater for its short-term financial obligations has increased. The company can now pay its short-term creditors more comfortably. Additionally, the company’s debt collection and selling efficiency has improved....

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