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Laura Schettini

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Laura Schettini & Hillary Cole. Accounting Final Project. Current Ratio. This Ratio measure the ability to pay short term debts. ... – PowerPoint PPT presentation

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Title: Laura Schettini


1
Accounting Final Project
Laura Schettini Hillary Cole
2
Current Ratio
This Ratio measure the ability to pay short term
debts. The lower values indicate a company is
having trouble with these payments. The
formula is Current Assets/ Current Liabilities
Division C is in the least trouble paying its
debt. The Current Ratio for Division C is
1.744186, Division A and B are both 2.5225.
3
Quick Ratio
This ratio measures a companys liquidity. It
excludes inventory because some companies can
have trouble selling their inventory do to
several reasons including competition or product
obsolescence. The Formula is Current Assets-
Inventory/ Current Liabilities Division A had a
ratio of 252249 Division B had a ratio of 252249
and Division C 217499.3. The lower the ratio
means the company is having trouble. All three
divisions are doing well.
4
Debt Ratio
This ratio measures a companys Riskiness. It
shows how much a company is in debt compared to
its assets. The formula is Total Debt
(liabilities)/ Total Assets The smaller the debt
the better off the company is doing. The higher
the debt, however indicates concern that the
company is having more difficulty and more likely
to fall into bankruptcy. Division A and B had
the lest risk with a ratio of 0.63991, while
Division C was more in trouble with a higher
ratio of 1.819462.
5
Return to Sales
Return to Sales is also called Profit Margin. It
measures the bottom line in the net income
percentage. The formula is Net
Income/Sales 100 Division A had a profit
margin of 6.005263 Division B -38.748 and
Division C 6.005263. The higher the percentage
the more profit the company is making. Division
B is loosing money while Division A and C are
making a small profit.
6
Return on Assets
This ratio compares the current years profit to
the assets utilized to generate that profit The
Formula is Net Income/ Assets Division A has a
Return on Assets of 12.89994, Division B
-88.0536 and Division C is 28.34783. Division
C used most of this years profit to generate that
profit.
7
Return of Equity
The formula is Net Income/ Assets Division A
had a return of Equity of 28.21464 Division B of
-192.59 and Division C of 8.5575. The greater
the percentage shows that the division is doing
well. Division A has the greater amount of
return of equity.
8
Average Collection Period
This is also referred to as Days Sales in
Receivables. It measures how long it takes a
company to receive its receivables. The formula
is Accounts Receivable/ (Sales)/365 Division
A with a ratio of 45.625 and Division B with a
ratio of 43.12811, both are fairly decent short
amount of time to receive its receivables.
Division C is the quickest with a ratio of
9.445175, this low average collection period
could indicate a tight credit policy and sales
can be lost to competitors who allow their
customers more time to pay.
9
Average Days of Inventory
It measures how many days of inventory the
company contains. Too high of a value indicates
that the company is not selling its products and
too low of a value indicates that the company
does not have enough on hand. The formula is
Inventory/ (Cost of Goods Sold)/365 Division A
with a ratio of 63.26667 and Division C with a
ratio of 42.07639, both have a decent amount of
stock. Division B has a lower amount of stock
off hand with a ratio of 71.62264 which means it
is not selling its stock.
10
Conclusion
Based on our ratios it is easier to analysis
which division is more profitable and which
division is in trouble. From our results I would
chose to invest in Division A because it seems
they have the greatest profits, and have the
least trouble paying for their expenses.
Division C is also doing well but not as strong
as Division A. Division B seems to be doing
poorly and if this continues it will go bankrupt.

11
The End!!
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