80.2K

Verified Solution

Link Copied!

We can see from these calculations that Cash decreased approximately 88%, Accounts Receivable increased by 1096%, and Inventory increased by 3757% between 2018 and 2019. Using the same formula, Accounts Payable went up by 1346%. The Current Ratio measures the liquidity of a company and is defined as Current Ratio = Current Assets / Current Liabilities, Where a current asset or liability is considered to be redeemable for cash within a year In this situation, Current Assets are the sum of Cash, Accounts Receivable, and Inventory, and Current Liabilities will be the sum of Accounts Payable and Bonds Payable. The Current Ratio answers the question: how liquid are the company's assets? In 2018, the Current Ratio was = ($53,500 + $5400 + $1400)/($5000 + $31000) = 1.64, and in 2019 it was 1.22 (see Appendix). Because the liabilities are in the denominator, the decrease of the Current Ratio indicates that the liabilities have increased faster than the assets between 2018 and 2019. Action item: Further investigation is required to find out what caused the changes between 2018 and 2019. For example, the high Inventory and high Accounts Payable in 2019 could be that the company purchased Inventory on account. Similarly, the excess Inventory and low cash in 2019 could be that the company has had low sales. High Inventory levels could also be due to the obsolescence of existing Inventory. Income Statement Analysis The graph below shows the Income Statement for Accounting is Awesome Corporation. It is concerning how much Net Income dropped from 2018 to 2019. Percent for Net income from 2018 to 2019: Percent change = {(16,100 - 77,700)/(77,700)} x 100 = -79% Net income has decreased by 79%. We can see from the graph below that the main Accounting is Awesome Financial Statement Report (v3) by Zayla Kruschewsky-Caldas and Steve Koziar 15 September 2020 Balance Sheet Analysis A lot changed for the company between 2018 and 2019. The graph below demonstrates Cash, Accounts Receivable and Inventory for the company from 2018 to 2019. Accounting Is Awesome Corporation: Assets $70.000 $60.000 2019 1 2018 $50.000 $40.000 $30.000 $20.000 $10.000 $- Cash Accounts receivable Inventory The percent formula used for the three classes of assets: Percent change = {(new $ value - old value)/(old $ value)} x 100, and that a negative value means that there was a decrease. Accounting Is Awesome Corporation: Income Statement Net Income 2018 Less: Operating Expenses 1 2019 Gross Profit Less: Cost of Goods Sold Sales $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Action item: The Corporation needs to look into strategies to reduce expenses in the next year. The increase in Operating Expenses between 2018 and 2019 did not seem to increase sales, and in fact Sales in 2019 where quite a bit lower than in 2018. Also the Corporation should consider ways to increase sales. Combining the analysis of the balance sheet and the analysis of the income statement, Accounting Is Awesome Corporation is in financial trouble. We can see from these calculations that Cash decreased approximately 88%, Accounts Receivable increased by 1096%, and Inventory increased by 3757% between 2018 and 2019. Using the same formula, Accounts Payable went up by 1346%. The Current Ratio measures the liquidity of a company and is defined as Current Ratio = Current Assets / Current Liabilities, Where a current asset or liability is considered to be redeemable for cash within a year In this situation, Current Assets are the sum of Cash, Accounts Receivable, and Inventory, and Current Liabilities will be the sum of Accounts Payable and Bonds Payable. The Current Ratio answers the question: how liquid are the company's assets? In 2018, the Current Ratio was = ($53,500 + $5400 + $1400)/($5000 + $31000) = 1.64, and in 2019 it was 1.22 (see Appendix). Because the liabilities are in the denominator, the decrease of the Current Ratio indicates that the liabilities have increased faster than the assets between 2018 and 2019. Action item: Further investigation is required to find out what caused the changes between 2018 and 2019. For example, the high Inventory and high Accounts Payable in 2019 could be that the company purchased Inventory on account. Similarly, the excess Inventory and low cash in 2019 could be that the company has had low sales. High Inventory levels could also be due to the obsolescence of existing Inventory. Income Statement Analysis The graph below shows the Income Statement for Accounting is Awesome Corporation. It is concerning how much Net Income dropped from 2018 to 2019. Percent for Net income from 2018 to 2019: Percent change = {(16,100 - 77,700)/(77,700)} x 100 = -79% Net income has decreased by 79%. We can see from the graph below that the main Accounting is Awesome Financial Statement Report (v3) by Zayla Kruschewsky-Caldas and Steve Koziar 15 September 2020 Balance Sheet Analysis A lot changed for the company between 2018 and 2019. The graph below demonstrates Cash, Accounts Receivable and Inventory for the company from 2018 to 2019. Accounting Is Awesome Corporation: Assets $70.000 $60.000 2019 1 2018 $50.000 $40.000 $30.000 $20.000 $10.000 $- Cash Accounts receivable Inventory The percent formula used for the three classes of assets: Percent change = {(new $ value - old value)/(old $ value)} x 100, and that a negative value means that there was a decrease. Accounting Is Awesome Corporation: Income Statement Net Income 2018 Less: Operating Expenses 1 2019 Gross Profit Less: Cost of Goods Sold Sales $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Action item: The Corporation needs to look into strategies to reduce expenses in the next year. The increase in Operating Expenses between 2018 and 2019 did not seem to increase sales, and in fact Sales in 2019 where quite a bit lower than in 2018. Also the Corporation should consider ways to increase sales. Combining the analysis of the balance sheet and the analysis of the income statement, Accounting Is Awesome Corporation is in financial trouble

Answer & Explanation Solved by verified expert

See Answer