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Ol 501 Milestone 2

By:   •  December 13, 2017  •  Essay  •  864 Words (4 Pages)  •  2,428 Views

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OL 501 Milestone Two Worksheet_Holt_Joshua

In this assignment, look at the financial statements of your chosen company and calculate some basic financial ratios to analyze the company’s health and performance.

 

  • Fill in the table below with information from the financial statements provided in your chosen company’s case study. Calculate the % change between the current year and previous year for each item. Remember to correctly identify the currency for your case study.

Currency

Canadian Dollars

Most Current Year

2015

% Chg (+/–)

Previous Year

2014

Current Assets

$60,000CAD

+20.69

$27,188CAD

Total Assets

$83,500CAD

+65.37

$50,492CAD

Current Liabilities

$41,262CAD

-41.54

$70,584CAD

Total Debt

$83,500CAD

+65.37

$50,492CAD

Sales/Revenue

$53,000CAD

+266.02

$14,480CAD

Cost of Goods Sold

$-29,500CAD

-447.96

$8,478CAD

Inventory

30,000CAD

+144.78

16,341CAD

Net Income/Loss

62,600CAD

+472.13

-16,822CAD

 

  • From the information in the table above, identify which line items are increasing with a plus sign and which are decreasing with a minus sign. Evaluate whether the change from the previous year is good or bad for the company’s performance and explain why.

Current assets and total assets for DRD is moving in the positive direction from 2014 to 2015. The company has projected to have more liquidity in 2015. Current liabilities are moving in a negative direction which is a positive for the company. They are receiving more assets and having to pay less in liabilities. The total debt is projected to increase in 2015. When compared with the assets for 2015 the debt is balanced out not leaving much wiggle room in the debt ratio. Sales for the company are moving in the desired direction going from 14,480 to a projected 53,000. Cost of goods sold is in the negative due to the previous year’s inventory numbers based on information gathered.  Inventory for DRD is projected to double in 2015.That could be a problem since the company had such a large inventory left over from 2014.  Net income is projected to increase significantly in 2015 when compared to 2014. The increase seems a little deceiving due to the fact that the distillery still has not paid salaries to employees.  

  • Use the information in the table above to calculate the following financial ratios. Explain what the result of each ratio says about your chosen company’s financial health.
  • Current Ratio = 1.45

  • Debt to Asset Ratio (Debt Ratio) = 1
  • Inventory Turnover = -1.08
  • Return on Sales (Profit Margin) = 1.18
  • Current Ratio is trending in the right direction for DRD. In 2014 the company had a current ratio of .38 which is very low when compared to the national average of 2. The number can be deceiving since all indusrties have different standards for average when it comes to current ratio. In 2015 the company has projected to have a much better current ratio of 1.45. Still below the average, but definitely moving in the right direction based on projected numbers.
  • Debt ratio for DRD is the same for 2014 and 2015. The company has a debt ratio of 1 both years. A debt ratio under one would mean that the company has more assets than debt. A number above 1 would indicate more debt than assets. DRD’s ratio of 1 means that the distillery has as much debt as it does assets. The equal ratio in both years at least shows that the company is not going red on debt ratio but also doesn’t indicate a positive move either.
  • Profit margin from 2014 was a very low -1.16 when compared to what the average usually is around 4 or 5 %. Based on projections for the 2015 year the company will make a huge leap in the positive direction going from the -1.16 to a 1.18. The new profit margin is still less than national average but definitely moving in the direction needed to reach the national average.
  • Inventory turnover is was a little difficult to determine for 2014. There were no previous years to average out the inventory. The number for 2015 was derived from the 2014 inventory and the projected 2015 inventory. DRD’s inventory turnover is a -1.08. That number is much lower than the national average of 9. Various industries have different averages but DRD’s negative number is still nowhere near where it should be.
  • Summarize your information and identify potential problem areas as reflected in the financials.
  • DRD is projected to move in the right direction for the 2015 year. The profit margin based on the numbers given is moving quickly in the positive direction. The debt ratio is not getting worse and the current ratio is moving in the direction the company should be happy with. The one concern however is the inventory turnover number. Based on the information given the number for 2015 is -1.08. A negative number means they have not cleared out the inventory and products are being produced and not sold.

Resources

Ivey Publishing. 2016. Deep roots distillery. Richard Ivey School of Business Foundation. Retrieved from https://cb.hbsp.harvard.edu/cbmp/content/72207825 12 Dec, 2017

 

Pride, W. M., Hughes, R. J., & Kapoor, J. R. (2017). Foundations of Business (5th ed.). Boston, MA: Cengage Learning.

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