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    Applied Managerial Finance: Analyze Superior's balance sheet

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    Look at Superior's balance sheet and analyze it. Be sure to focus on working capital, current ratio, short-term and long-term debt. End with a brief summary addressing the CFO's concerns as related to these areas, in memo format.

    Superior Living, Inc. is a private, domestic U.S. manufacturer of home furniture targeted at U.S. consumers ages 21 to 54 (from first-time apartment renters to empty nesters). The company generates $250 million in revenues from six product lines: outdoor patio, luxury, durable rental, children's furniture, rare woods, and space saver. The company sells its products through a number of retailers and has a solid business reputation with distributors and customers. Superior Living has divisions for each of the product lines, and each division includes sales, marketing, and manufacturing personnel. The other functional areas 'human resources, finance, and information technology' support the entire company. You are the vice president of finance, reporting to the chief financial officer (CFO).

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    Solution Preview

    See attached file.

    Dear CFO:

    My study of the balance sheet shows that inventory and the payment for inventory are the largest sources of threat to our financial stability.

    The current ratio is over two, a healthy reading for any firm. However, the quick ratio, which omits inventory and prepaids, is below 0.5 in all three years. This indicates that if your inventory ...

    Solution Summary

    Your tutorial is 207 words plus a common-sizing of the balance sheet and the computation of current ratio, quick ratio, debt to equity, asset turnover and accounts receivable turnover in Excel (see attached). Analysis of the computed ratios is given.