Fnt1

In: Business and Management

Submitted By JiyalAryn
Words 2650
Pages 11
Memorandum
To: CEO of Company G
CC:
From:
Date: 3/1/2015
Re: Analysis of Company G Ratios
The following is the breakdown you requested on the Company G financial statements.

Current Ratio
= Current Assets / Current Liabilities
The current ratio is a representation of Company G’s ability to pay its short-term debts. In other words, the current ratio represents the number of times the company can pay its current liabilities by liquidating its current assets. To calculate current ratio, the total Current Assets divided by the total Current Liabilities of Company G. It is preferred that a current ratio is greater than 1.0, and a higher current ratio represents an increased ability to pay short-term obligations. The current ratio calculated for Company G for Year 12 is 1.77. This ratio is trending downward from the Year 11 current ratio of 1.86. A current ratio of 1.77 in Year 12 places Company G well below the first quartile ratio of 3.1 and solidly between the second and third quartile ratios of 2.1 and 1.4, respectively. This represents a weakness in the position of Company G, as even though the company is above the third quartile the trend of decline in current ratio places it in a position of potential instability. Special attention should be paid to improving the current ratio of Company G in Year 13.
Acid-Test Ratio
= Cash + Short Term Investments + Net Acct. Receivable / Average Acct. Receivable
The acid-test ratio is a representation of the ability of Company G to pay its short-term obligations from cash reserves or other accounts easily liquidated into cash, such as short-term investments and/or accounts receivable. The acid-test ratio specifically excludes inventory and other current assets not easily liquidated into cash. The calculation in this instant is (Cash + Short Term Investments + Net Accounts Receivable) / Current Liabilities. This…...

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