Question

R. Earnings Per Share 2018 JHO 2019 The financial statements provided in this practice set can also be downloaded from Blackboard. An example of a Statement of Cash Flow has been provided at the end of the Practice Set. Download the Excel files (Income Statement and Balance Sheet) from Blackboard and add a column and calculate the ratios for the vertical and horizontal analysis. 5. Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared in step two and prepare an analysis of the company's financial position. Identify two strengths and two weaknesses in the company. Make two 2 Page

I need to do the memo analyzes with two strenghts, two weaknesses, and make two recommendations to improve the company.

Answer 1

Solution

Two strengths

1. Investment in non current assets funded by long term liabilities and shareholders equity. Therefore current assets are available to payoff current liabilities

Current ratio of the company is = 1.62

2. The company enjoys good amount of credit from its suppliers. Thus working capital is available to meet the other needs of the business.

3. Earnings are retained in the business for future growth of the company.

Two weakness

1. There was no debt on the company in the year 2018 which increased to 130000 in the year 2019.  

2. The company is not efficient enough in collection of it's accounts receivable. Accounts areceivable has increased 50% in 2019 as compared to 2018.

Recommendations

1. Accounts receivable turnover ratio should be improved. The ratio is used to measure how effective a company is at extending credits and collecting debts.

2. Inventory turnover ratio should be improved. The amount of closing inventory has increased as compared to previous year.