Ratio Analysis Memo

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Berry’s Bug Blasters Ratio Analysis Memo ACC/291 Principals of Accounting II MEMO To: Berry’s Bug Blasters CEO From: Accounting Dept (Team B) Date: September 16, 2013 Re: Ratio Analysis Accounting Team B conducted a ratio analysis of Berry’s Bug Blasters to express the relationships among selected items of financial statement data. Ratios express mathematical relationships between one and another is expressed in terms of percentage, rate, or simple proportion. We used ratios to evaluate liquidity, profitability, and solvency. Listed below are the findings from the ratio calculations. The analyses reveal many things about the company’s financial position and performance, and also which users are interested in each type of ratios. Liquidity Ratios Liquidity Ratios measure the short-term ability of the company to pays its maturing obligations and to meet the unexpected needs for cash. Short-term creditors such as bankers and suppliers are particularly interested in assessing liquidity. The current ratio, the acid test, receivables turnover, and inventory turnover are ratios that are used to determine Berry’s Bug Blasters short-term debt paying ability. (Scott. Add liquidity ratios information) Profitability Ratios Berry’s Bug Blasters ability to obtain debt and equity financing depends on income or the lack of income. Profitability ratios measure the income or operating success of a company for a given period of time, and also affect the company’s liquidity position and ability to grow. Both creditors and investors are interested in evaluating earning power, or profitability. (Yolanda add profitability ratio information) Solvency Ratios Solvency ratios measure the ability of Berry’s Bug Blasters to survive over a long period of time. Debt to total assets and time interested earned are two ratios that provide information about debt-paying
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