Triple A Office Mart Essay

564 WordsNov 28, 20093 Pages
Triple A Office Mart is a profitable company, organized in 1978, which sold a complete line of office equipment, furniture, and supplies. Budgetary control of the two original stores was centralized in the store and office complex which operated in the larger of the two cities. With the arrival of the personal computer, a major component of company sales, Triple A has experienced excellent growth in revenue and earnings. The income statement attached provides an illustration of a portion of the firm’s sales and earnings history. The balance sheet attached also details the company’s total assets and liabilities for selected years. However, in early 1996, there had been cause for concern on the part of company management. Prices from suppliers had risen and the firm’s financial managers wondered about the effect of this upon profitability and the general operation of the business. I have examined the financial condition of Triple A through various ratios to aid in determining if Triple A can remain a continuing customer of our bank. To start, I examined the short-term solvency, or liquidity, of the company. The current ratio has moderately decreased over the past several years showing the firm is becoming less liquid. This reflects the number of times the company’s current liabilities are covered by its current assets. Next, the acid-test, or quick ratio, has shown a decrease as well. This illustrates that the company is more probable to have liquidity problems. Subsequently, the next ratio’s my company evaluated were the efficiency ratios. The accounts receivable turnover was very high which shows that the firm is using its accounts receivable effectively in generating sales. Also, the average collection period shows the average length of time for which the business extends credit to its customers. Since the accounts

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