| Huffman Trucking | Memo To: Graham Grove, Vice President of Industrial Relations From: Paul Johnson Director of Accounting CC: Simone Ojeda Accounting Specialist Date: [ 4/9/2012 ] Re: Results from ratio calculations and horizontal and vertical analysis What do the liquidity, profitability, and solvency ratios reveal about the company’s financial position? Liquidity ratios are the ratios that measure the ability of Huffman Trucking to meet its short term debt obligations. These ratios measure the ability of this company to pay off its short-term liabilities when they fall due. Profitability ratios measures Huffman Trucking’s ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of the company to generate earnings, profits and cash flows relative to some metric, often the amount of money invested.
Another difference between them is the time on how they can be turned into cash at a faster rate. What is the order of liquidity? Liquidity in terms of accounting means how soon or how fast an asset can be turned into cash to comply and maintain its current financial obligations toward service and material suppliers. Order of liquidity refers to the way the assets are recorder in a balance sheet in descending order of liquidity beginning with cash, current assets- accounts receivable and inventory . The common methods of a chart of accounts include Accounting types – assets, liabilities, equity, revenue, expenses and revenue, followed by order of liquidity, and the account numbers.
There are three main categories for the Statement of Cash Flows. The first is the “Cash flows from operating activities”. This category includes the cash activities for the daily transactions of the company. This includes the revenues the company makes from its business and the expenses related to making this revenue (payments to creditors, utilities, salaries, etc.). Investing activities have to do with the company buying a major asset, such as land, large equipment, buildings, etc.
This is classified by ROI. | Titman, S., Keown, A. J., & Martin, J. D. (2014). Financial Management, Principles and Applications (12 ed.). : Pearson EDU. | Cash flow and a source of value | This term is described of the flow of cash coming in and out.
1. Provide the definitions of throughput, inventory and operational expense given in The Goal. How do they compare with the traditional definitions? Do you find them useful, and why? Throughput is the rate at which the system generates money through sales while inventory is all the money that the system has invested in purchasing things which it intends to sell.
ACCT 504 Week 4 Midterm Exam Click here to Purchase (TCO A, B, C) Which of the following statements concerning users of accounting information is incorrect? (TCO C) Issuing shares of stock in exchange for cash is an example of a(n) (TCO C) Which activities involve putting the resources of the business into action to generate a profit? (TCO A) The cost of assets consumed or services used is also known as (TCO C) Edwards Company recorded the following cash transactions for the year (TCO A) On a classified balance sheet, prepaid insurance is classified as (TCO A) An intangible asset (TCO A) These are selected account balances on December 31, 2007. -Land (location of the corporation's office building) $200,000 -Land (held for future use) 300,000
Decrease Cash Increase Assets (c) Issued common stock to investors in exchange for cash Increase Cash Decrease in Stock Equity. (d) Paid an account payable in full. Decrease Cash Decrease Liability 10. What is the normal balance for each of these accounts? (a) Accounts Receivable.
a. They are recorded at cost and adjusted for inflation. b. They are recorded at market value for financial reporting because historical cost is arbitrary. c. Accounting principles require that companies report assets on the income statement.
Therefore, GM’s financial policies were based on specific financial targets such as book value, debt-to-total capital ratios, interest coverage ratios, and cash flow coverage ratios. Also, financing policy at GM is structured around matching liabilities to assets, hence ensuring that liabilities were related to earning assets; consequently, impact on operating cash flow caused by movements in interest rates was offset by changes in the value of the firm’s liability portfolio. 2. GM’s options positions GM’s off-balance sheet exposure to foreign exchange forward contracts and exchange options was $16.8bn and $12.3bn in 1991 and 1991 respectively. Swaps: since 1986, the GM had entered into 8 interest swaps, 7 of which were done in 1991, only for the central office activities Caps: no caps transaction before 1991; between 1991 and 1992, GM entered in13 transaction for a notional principal value of $2.6bn.
Since debt and equity levels are closely related there is an analysis called the “DuPont model” that systematically breaks ROE into components so that each can be evaluated. ROE = NI x EBT x EBIT x Sales x Total assets EBT EBIT Sales Total assets Common equity EBT = earnings before taxes. The first ratio measures the proportion of earnings before tax that is kept by the company. EBIT = earnings before interest and taxes. The second ratio measures the effect of interest; it indicates the proportion of earnings before interest and tax that is retained after paying interest.