ACC 201 Final Project Part II Bank Memo Your Name Southern New Hampshire University To: The Bank Manager From: Student’s Name Date: Subject: Request to issue loan to Peyton Approved Dear Sir, Recently we have started our own dog treat bakery on a corporate form of business and have named it "Peyton Approved." Its purpose is to produce and sale dog treat. During the first six months its’ of operation we have experienced excellent results in terms of sales and profits. Now the firm is planning to extend its business and therefore firm is in need of finance, which firm is planning to get sanctioned form the bank. Overview of the Company’s Accounting System Company maintains proper records of all transactions following accrual basis of …show more content…
It follows a strong internal control system for cash. A separate person is appointed to approve all purchases, payroll and any disbursement of cash. At the end of each month company prepares bank reconciliation statement to reconcile cash book balance and bank statement balance. Company keeps proper inventory record system. All these prevent frauds and ensure smooth functioning of the business. Results of Operations and Strengths and Weaknesses of the Company Profitability is an important criterion to judge the success of the business. Accounting has a big role in determining business profitability. Using accounting we can maintain proper records of all business dealings, which later on assists in computing business profitability. It is only accounting due to which we can easily make financial statements at the end of each accounting year and find out the profit earned or loss suffered in the business. Thus, Accounting provides us significant information which we further analyze and come up with material conclusion or decision. To analysis financial statements there are various tools. Ratio analysis is one of them. In ratio analysis we establish relationship between two or more items of financial statements and derive some vital information about the business. Ratio …show more content…
This ratio is used to judge the liquidity of the business. Current ratio of Peyton Approved is 8.13, which is very high than the standard current ratio (2:1), thus the liquidity of Peyton Approved is very sound. Company has enough current assets to pay off its current liabilities. Quick ratio is another measure of liquidity. In quick ratio we consider only liquid assets and its standard ratio is 1:1. Quick ratio of Peyton Approved is 7.63. Thus, there is no doubt that the company has got excellent liquidity. Company has enough liquid assets to pay off current liabilities. Profit margin ratio is the ratio between net income and net sale. This ratio discloses the earning capacity of the business. Higher profit margin ratio ensures high return to the owner or shareholders. It also helps in the growth of the business. Profit margin ratio of Peyton Approved is 53.44%, which is excellent and shows that company is has a good prospects in terms of
Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of
Peyton Approved was formed a little over a year ago in the kitchen of the owner of a wonderful Airedale named Peyton. Peyton has severe allergies and cannot eat dog treats from the store. Peyton Approved sells homemade dog treats that are all natural and hypoallergenic. The company’s president (also Peyton’s owner) started selling these treats out of her home to other dog owners who wanted all natural dog treats for their dogs. Due to more demand of the all natural, hypoallergenic dog treats, Peyton Approved needs more room to make the treats and reach more dog owners. Peyton approved feels moving into a storefront will reach more dog owners who want their dogs to have all natural dog treats. Financing will provide Peyton Approved the
Payton Approved, a new dog bakery opened in July 2014. To measure the businesses success the first six months are reviewed. The first topic will discover the steps of the accounting cycle with descriptions of each process. Next, one will learn and analyze a report of the importance of each step for the accounting process to measure success. The last analyzed step will discuss how the omission of one step can impact the success of the company.
When you’re looking at the income statement, you can get information about profitability for a particular period. This is also called the profit and loss statement. The income statement is composed of both income and expenses. This statement can be used to deduct expenses from income and report either a net profit or net loss for that period. This statement will deduct all expenses from income and then report your net profit or net loss for that period. This will allow the business owner to determine if the business is bringing in a good amount of revenue to make a profit. The cash flow statement shows the movement in cash and balance over period. The cash flow can vary depending on the operating activities, investing and financing activities. This statement provides one business owner with insight to the company’s liquidity which is vital to the growth of the business. Reinvesting in business is very important, looking at the statement of retained earnings will tell a business owner how much were reinvested in the company. After profitable period, every big business has to give some of its profits to stockholders, and keep the rest amount as retained earnings. Out of all statements, retaining statement is important to companies that sells stocks to the public. This statement can also provide you with assets and liabilities information. These informations can be used to assess the financial health of your business. The results of a balance sheet will help the business owners to show the risk of liquidity and credit. Looking at these information you can measure trends and relationships to show where in the areas you can improve. These can also be compared to similar companies to show how the business measures up to leading competitors (Ali, 2010). In summary, the financial statements can provide a business owner
This method we believe allows us to see our profits, resources, debts and other information that will give us a more realistic view on where we stand as a company. match the economic reality.
Accounting is the study of how businesses track their income and assets over time. Accountants engage in a wide variety of activities besides preparing financial statements and recording business transactions. These activities include computing costs and efficiency gains from new technologies, participating in strategies for mergers and acquisitions, quality management, developing and using information systems to track financial
This ratio is similar to current ratio, except that it excludes inventory from current assets. Inventory is subtracted because it is considered to be less liquid than other current assets, that is, it cannot be easily used to pay for the company’s current liabilities. A company having a quick ratio of at least 1.0, is considered to be financially stable. It has sufficient liquid assets and hence, it will be able to pay back its debts easily (Qasim Saleem et al., 2011).
These ratios are computed to judge the short term liquidity of the business. Two most important liquidity ratios are current ratio and quick ratio. These ratios determine the ability of firm to meets its current liabilities out of its current/quick assets.
Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.
Liquidity ratios measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity
In this paragraph I will be discussing the liquidity of UPS, by analyzing the current ratio and quick ratio. The current ratio lets potential investors see the ability of companies to pay off their short-term liabilities, with their short-term assets. It also can tell investors the financial health of the company as well, so if it is below 1 then the company has problems and can potentially go bankrupt. For UPS the current ratio is 1.14, which is below the industry average of 1.32. It is still good, since it shows that UPS is able to pay off their debt with just their short-term assets alone; also, that they are good financial health. Next, is the quick ratio, which lets investors see if a company can meet their short-term obligations, with
Liquidity In analyzing liquidity of the company, the current ratio is not very telling of a falling company. The company increased its ratio throughout the period of the income statement thus building upon its company assets and allowing for a 6-1 ratio of assets over its liabilities. This implies the company is still able to operate sufficiently even though it did not make its optimum current ratio of about 8-1. However, when one takes the inventory out of the equation with the quick ratio, the numbers show the true strength of short term liquidity. The numbers are still good, and do not indicate failure – but are
These ratios help company in determining its capability to pay short-term debts. Liquidity ratios inform about, how quickly a firm can obtain cash by liquidating its current assets in order to pay its liabilities. General liquidity ratios are: current ratio and quick ratio. Current ration can be obtain by dividing company’s current assets by its’ current liabilities. Generally a current ratio of two is considered as good (Cleverley et al., 2011). Quick ratio also known as acid test determines company’s liabilities that need to be fulfilled on urgent basis. Quick ratio can be obtained by dividing quick assets by current liabilities. Quick ratio is considered as stricter because it excludes inventories from current assets. Generally a quick ratio of 1:1 is considered as good for the company. Higher quick
The quick ratio reflects on a company’s ability to meet its current liabilities without liquidating inventories that could require markdowns. It is a more stringent test of liquidity than the current ratio and may provide more insight into company liquidity in some cases. For Colgate-Palmolive, the quick ratio has declined from 0.73 in 2008 to 0.58 in 2010. While this does not necessarily mean a problem, a higher current ratio and quick ratio analysis will mean that the company will not have difficulty in meeting its short-term obligations from its operations and not by liquidating its assets.
As the goal of your portfolio is to provide an income for you, we must view the profitability of the business. The most current Operating Margin also known as the Profit Margin for Exelon is 15.60% measures the percent of revenues after paying all operating expenses. It is calculated as Operating Income divided by the Total Revenue then multiplied by 100. Operating Margin is used to measure a business 's operating efficiency. Operating margin suggests how much a business makes before interest and taxes on each dollar of revenue. The higher a business’s Operating Margin is the better off the business. Exelon most current Net Profit Margin is 8.61%. This value is the Income after taxes divided by Total Revenue for the same time interval of time. This is the ration that businesses use to report their cost-effectiveness. A business that is growing its net earnings or reducing its costs is said to be improving. It’s expressed as the business “bottom line.” The bottom line also refers to any activities that may increase or decrease net earnings or a business’s overall profit.