Organizational Financial Statements
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Scenario:
You have achieved great success at Physical Movement Company (PM Co.) as their Sales Manager. PM Company is a three year old, US$25 million home healthcare company, headquartered in the northeastern part of the United States. The firm creates and sells wheelchairs, walkers or other types of "mobility products" that give a person some level of mobility when they can no longer completely ambulate on their own. Recently due to an influx of inquiries about your mobility products and some very large, direct sales to customers outside your home country, you have been promoted to the position of Vice-President of International Sales, responsible for all sales outside the United States. The job sounds simple enough - just sell your great mobility products around the world! Benefits of the job include traveling globally, eating great food and shopping for bargains in your free time. Life is good!
However, after a few days in your new position you begin to realize there is more to this job than what you were previously accustomed to as a Sales Manager who sold only in your own country. Your previous job responsibilities included finding a need for your mobility products, overcoming any objections and closing the sale. You were very comfortable in this role. As you begin to call on companies around the world by phone and e-mail, you realize that the global business environment is far more complex, involves many more details, and requires much more knowledge than you ever realized! Because of the time zone differences, you are finding yourself working all the time as business is conducted 24 hours a day, 7 days a week around the world, so there is always someone you need to contact or follow-up with. No one in the company has ever sold internationally before. There are a few employees in the company who were not born in this country. They can provide some language skills and can share their cultural knowledge, but they do not have international business experience. However, you are now the global business leader for your company.
Late one night between calls to Singapore and China, you realize you need to quickly learn as much as you can about global business issues and their implications and to communicate these issues and their solutions to senior management so that together you and the company can achieve your new worldwide revenue objectives.
Phase 2 - Organizational financial statements
Task Type: Group Project Deliverable Length: 8-12 slides powerpoint, discussion, spreadsheet
Points Possible: 200 Due Date: 4/19/2005
You and your small group have been asked to create an informative slide presentation to managers, most of whom do not have a technical knowledge of accounting.
First, you will discuss key elements with top executives. How will investors assess the stability of Strident Marks? What are the key financial ratios that measure the stability of an organization? Define stability.
Next, individually, calculate these ratios, downloading the data here Phase 2 IPS 1 (attached file)
Task Type: Discussion Board Deliverable Length: 4 paragraphs single spaced times new roman
Points Possible: 75 Due Date: 4/22/2005
You are a participant in the biweekly meeting with the finance department. You have been asked to lead the discussion on the role that forecasting should play at Strident Marks. Discuss the financial statement forecasting process and compare it to, and differentiate it from, the budgeting process. Why is forecasting important to an organization?
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SLIDE 1 INTRODUCTION
Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare Physical Movement Company ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.
SLIDE 2 Current Ratio Physical Movement Company
The Current Ratio is one of the best-known measures of financial strength. It is figured as shown below:
Current Ratio = Total Current Assets / Total Current Liabilities
Current Ratio = 20,960/8,150 = 2.57.
The main question this ratio addresses is: "Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.
If you feel Physical Movement Company's current ratio is too low, you may be able to raise it by:
· Paying some debts.
· Increasing your current assets from loans or other borrowings with a maturity of more than one year.
· Converting non-current assets into current assets.
· Increasing your current assets from new equity contributions.
· Putting profits back into the business.
SLIDE 3 Quick Ratio Physical Movement Company
The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below:
Quick Ratio = Cash + Government Securities + Receivables / Total Current LiabilitiesQuick Ratio = 20210/8150 = 2.47
The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: "If all sales revenues should disappear, could my business meet its current obligations with the readily convertible `quick' funds on hand?"
An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.
SLIDE 4 Working Capital Physical Movement Company
Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:
Working Capital = Total Current Assets - Total Current Liabilities
Working Capital = 20,960 - 8,150 = 12,810
Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements.
A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.
Gross Profit ratio
This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company.
Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows:
Gross Profit Ratio = Gross Profit / Net Sales x 100Gross Profit Ratio = 25,00/50,000 x 100 = 50
SLIDE 5 Net Profit Ratio Physical Movement Company
This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare Physical Movement Company 's "return on sales" with the performance of other companies in your industry. It is calculated after income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Ratio is calculated as follows:
Net Profit Ratio = Net Profit After Tax / Net SalesNet Profit Ratio = 4,200/50,000 =8.4
SLIDE 6 Inventory Turnover Ratio Physical Movement Company
This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as follows:
Inventory Turnover Ratio = Cost of Goods sold / Average Inventory at ...
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