Question 5 only horizontal analysis on these accounts. Compare the changes in ac
ID: 2780033 • Letter: Q
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Question 5 only
horizontal analysis on these accounts. Compare the changes in accounts, and describe the changes that were beneficial or detrimental to this company in one sentence. st month, you were vacationing in Phoenix and noticed that there were 4. veral Starbucks Coffee locations. You do not have any coffee locations in your city, except for a few local cafes. You also have a large college in our town and believe that, if Starbucks Coffec opened a location, they would be very successful. If you went to your public library, what sources would you use to find out more information about this company? If you are on the Internet, how can you obtain additional information on this company 5. Given the balance sheet for the Moderately Large Corporation (Table 4-4) answer the following: a. For each year, calculate the following ratios: current, quick, debt-to-asset, and debt-to-equity. b. In a written explanation, state what each ratio means. c. Compare the ratios for the 2-year period and determine if the MLC is suf- ficiently liquid. d. How well is the MLC managing its debt? 6. Perform a horizontal analysis of the MLC balance sheet (Table 4-4) a. Compare assets, liabilities, and owner's equity from one year to the next. In the conoration btter off in 2013 or in 2012? ble 4-4) forExplanation / Answer
1. 2013 ($) 2012
a)Current ratio=Current asset/ current liablities =4066/754=5.39 times =2950/563=5.23 times
b) quick ratio= Current asset -Stock - Prepaid expesnes/Current liablities
=4066-1489-157/754=3.62 times =2950-481-126/563=4.16times
c)Debt to asset ratio=Total debt/Total asset
Total debt= Long term debt + current liablities Total asset= Fixed asset + Current asset
=3384/7371=0.43 =2392/5398=0.44
d)Debt/ equity ratio=total debt/ total Equity
=3384/3987=0.84 =2392/3006=0.79
2.a)Current ratio= It defined the liquidity of the company in the one accounting period.It takes into account of asset and liabilities which are either used or required to be paid in one accounting cycle. The ideal ratio is 2:1.Its very important ratio to understand short-term liquidity position of the company.
b) Quick ratio: It similar to Current ratio but it is more liquid in nature since it excludes inventory and prepaid expenses which takes a longer period to convert into cash.
c) Debt to total asset ratio: It is a leverage ratio which determines how much debts is being used to finance over asset. The lower the ratio the better it is. Its being used by all the stakeholders to understand the finacial risk of the company in terms of debts.
d)Debt to equity ratio: This ratio defines how much stake do debt holders have in the business. In addition to it, it determines the financial and liquidity of the company. This differs industry to industry but the lower the ratio better it is since the company needs to pay less to debtholders in near future and shareholders can share bigger profits.
3) As per all ratios such as current ratio and liquid ratio for two years it looks company invested hugely in inventory in expectation of better sales outcome which is impacting its cash liquidity in the shorter term. Moreover, company accounts payable has led to increase in the current liablities which again will have liquidity impact in the shorter term.
The other leverage ratio says that company is not managing its debt in a better way since it has increased over two years period.
4) company debt to equity ratio and debt to the total asset has not improved much in the last two years. This is due to the long-term liabilities has almost doubled to $2630 from $1830 which has resulted in deterioration of the company leverage position in the last two years. This will have an impact on company's profit since more outgo of interest will happen in the coming years.
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