P7 Solvency is when a business is able to pay is expenses as it has money available within the business. To determine solvency, businesses can use ratios such as current ratio and acid test ratio. These ratios allow businesses and potential investors to see how well that are able to meet their liabilities. Current Assets Current ratio = Current liabilities The acid test ratio shows the assets compared to liabilities, like the current ratio, but by taking out the stock figure from the current assets, it shows how well a business can meet its liabilities without having to sell stock, Current assets - stock Acid test ratio = Current liabilities Profitability Ratios can also show how profitable a business really is either as a snapshot or over time. There are three ways of working out how profitable a business really is: * Gross profit percentage – This calculation shows gross profit as a percentage of the turnover.
Financial Analysis * The tax rate is approximately 30% 5.618.8=29.79% 5.418.1=29.83% 5.418=30% * Based on the industry average, a sports store of similar size should be making around $21000 or 67% more profitable than Rhodes’ store. * Assuming the lots are of the same size and bear the same tax burden, if the unused lot is sold off property taxes would be reduced by $6000 at the 2008 rate. All else being equal, this would increase net profit by 6000×0.30=$1800, for a total of $14400. Profit as a percentage of sales would increase from 2.1% to 2.4%. * Of the $18400 Rhodes made in mortgage payments last year, $8000 was interest.
The ROE for Sepracor is 33.07%, which means that 33.07 cents of assets are created for each dollar that was originally invested. It measures how Sepracor is using its money. The higher the return on equity, the more funds available to be invested in improving business operations without having to invest more capital. Debt to asset ratio measures the company’s solvency, and the higher the ratio, the lower the borrowing capacity for the company. I would make an investment in the company’s 5% convertible bonds.
1. (TCO A) Which of the following is an advantage of the corporation relative to sole proprietorships and partnerships? (Points : 5) Simple to establish Lower taxes Unlimited personal liability of investors Easier to raise funds 2. (TCO A) Dividends _____. (Points : 5) represent an expense and are an operating activity represent an obligation and are an operating activity represent a distribution of earnings and are a financing activity represent an asset and are an investing activity 3.
According to accountants, profit is total sales revenue less total explicit costs. Economically speaking, profit is revenue less explicit costs less implicit costs. Either way, companies are in business to make profit. When a company allows the overall market to set its price by supply and demand, the only control the company has over profit is the number of items it makes. Thus, a purely competitive company seeks to either maximize its profit or minimize its loss (economic) by adjusting the number of items it makes.
This means that it is reasonable to expect cash is to be received at a later date, though service has already been performed. Expenses in accrual accounting are recognized at the time when the related revenue is recognized this is also known as matching principle. The accrual method makes it possible for cash inflows and outflows to be joined with expected cash inflows and cash outflows, which paints a definitive picture of a company’s current financial condition. Accrual accounting is the preferred method of accounting, as it relates to GAAP. Cash basis accounting is very different from accrual basis accounting, because it recognizes income only when payment is received and expenses when they are made.
Generally accepted accounting principles prescribe the accrual basis of accounting over the cash basis of accounting. The accrual basis of accounting measures the performance of a business by showing in detail every transaction regardless of when the funds are received. Cash basis of accounting only accredits earnings and expenses when money is really being paid out or received. The cash basis of accounting is a less expensive way of keeping records but the failure of using this method is that financing is very difficult because of inaccuracy. The big difference between accrual and cash basis of accounting is when one uses cash basis entries are recorded at the time payment is received.
GAAP is important to financial statements because it allows companies to provide accurate and consistent financial information to investors, creditors and stakeholders of a company. It is not required by law, but nearly all companies that use GAAP guidelines can maintain consisted reporting processes and prepare accurate financial statements. Liquidity is the ability of a business to turn its asset into cash as its obligations come due. It is safer to invest in liquid assets than illiquid because it is easier for you to get your money out of the investment. The liquidity of a product can be measured as how often it is bought and sold.
Income budgets: a measure of how much cash is flowing into the business for a period of time through sales for example. Income budgets: a measure of how much cash is flowing into the business for a period of time through sales for example. Expenditure budgets: A plan of cash outgoing from the business to maybe cover costs for example, over a future period. Expenditure budgets: A plan of cash outgoing from the business to maybe cover costs for example, over a future period. Budget definition: Budgets are financial plans looking at expected costs and revenues over a future period.
The company usually had sufficient capital to cover permanent requirements – it grew over the years, and remained profitable during each 12-month period. The company, however, usually obtains short term borrowings from banks during July to December of each year, when additional working capital was needed to support