Ratio Analysis of Adam Crop and Aron Crop

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Table of Contents

ASSIGNMENT 1

ASSIGNMENT 2

2.1 Ratio Analysis of Adam Crop and Aron Crop

Current ratio

Acid test ratio

Debt ratio

Interest coverage ratio

Account receivable turnover ratio

Inventory turnover ratio

Total assets turnover ratio

Return on assets

Return on equity

2.2 Scenario Analysis of Adam Crop and Aron Crop

Liquidity

Solvency

Profitability

Asset management

2.3 Limitations in Investing in Adam Crop or Aron Crop

References

ASSIGNMENT 1

Seloka Company Limited

Income Statement (For the year ended Dec 31, 2012)

Details

RM

RM

Sales Revenue

785250

unrecorded Sales

9100

earned sales revenue

3000

Less: Sales returns & allowances

(38750)

Less: cost of goods sold

(460800)

gross profit

297800

Less: Operating Expenses:

Selling and distribution expenses

61560

administrative expenses

92160

other operating expenses

37870

Insurance expense

3450

bad debt expense

7134

interest expense

10600

other revenue

360

Depreciation expenses:

Buildings

10000

equipment(4150+14750)

18900

bond discount

2800

trade in allowance

6000

250834

Net income

46966

Closing Journals

  1. The expired insurance ID 3,450RM, so insurance expense incurred when it has expired.

Insurance Expense 3,450

Prepaid Insurance 3,450

  1. The unearned sales revenue is 4,000, it is collected at the end of 2012, so sales revenue increase 4,000.

Unearned Sales Revenue 4,000

Sales Revenue 4,000

  1. Notes Receivable is 9,600, the interest rate is 9% per year. The Notes is dated August 1, 2012, the interest of five months is under below:

9600*9%*5/12=360

Interest receivable 360

Interest Income 360

  1. The long-term notes payable interest accrued at the end of year 2012.

Interest Expense 3,600

Interest payable 3,600

  1. The company wrote-off a customer’s account of RM 1,000 which was confirmed to be uncollectible.

Allowance for doubtful accounts 1,000

Accounts receivable 1,000

Accounts Receivable 9,100

Sales Revenue 9,100

  1. On December 15, 2012, the company declared final dividends on its preferred stock, payable on January 5, 2013.

Preferred Stock Dividend 3,500

Dividends payable 3,500

Seloka Company Limited

Stockholders’ Equity (For the year ended Dec 31, 2012)

Details

RM

RM

Common Stock

200000

7%preferred stock

50000

treasury stock

(3500)

share premium

19500

common Stock dividend

(7860)

preferred share dividend

(3500)

net income

46966

Ending equity

324326

Seloka Company Limited

Stockholders’ Equity (For the year ended Dec 31, 2012)

Details

RM

RM

Assets:

cash and cash equivalents

cash

32200

accounts receivable

35100

less; allowance for doubtful account

(1250)

notes receivable

9600

interest receivable

504

prepaid insurance

1150

Patent

80000

property, plant, equipment

583000

Purchase

19000

less: disposal of equipment

(18000)

Less: depreciation

(28900)

Total Assets:

712404

Owner's equity and liability

ending equity

324326

notes payable

30000

accrued interest expense

10600

unearned sales revenue

1000

Bond payable

70000

retained earnings

51589

Total Liability and owners equity:

712404

Closing Journals

  1. The disposal of the old equipment
  1. Disposal of fixed assets-Equipment 1,600 (24,000-22,400)

Accumulated Depreciation-PPE 22,400 (11,200*2)

Fixed Assets –Equipment 24,000 (12,000*2)

As the estimated residual value is 800RM for per equipment, the accumulated depreciation for each equipment is 11,200RM. (12,000-800)

When dealing with the old equipment, this company lost RM 1, 600, so the non-operating income is (1600).

Disposal of fixed assets-equipment (1,600)

Non-operating Income (1,600)

  1. The company bought a new equipment.

Equipment-PPE 19,000

Cash 19,000

  1. Calculate the accumulated depreciation for the new equipment for one year.

(19,000-2,400) / 4 = 4,150

Administrative Expenses 4,150

Accumulated Depreciation 4,150

  1. Received the trade-in allowance 6,000RM.

Cash 6,000

Non-operating Income 6, 000

  1. Provide depreciation annually on fixed assets held at the relevant year-end.
  1. Buildings 500,000 * 2% = 10,000

Depreciation Expenses 10,000

Accumulated Depreciation 10,000

  1. Equipment 83,000* 25% =20,750

Depreciation Expenses 20,750

Accumulated depreciation 20,750

  1. Closing of revenue accounts.

Sales revenue 798,350

Sales return and allowance (38,750)

Interest Income 360

Non-operating Income 4,400

Income Summary 764,360

  1. Closing of Expenses accounts

Income Summary 694,340

Cost of goods sold 460,800

Selling and distribution expenses 61,560

Administrative Expenses 96,310

Other expenses 37,870

Insurance expenses 7,050

Depreciation expenses 30,750

  1. Closing the income summary account

Income summary 70,020

Retained earnings 70020

  1. Closing the dividends accounts

Retained earnings 11,360

Preferred stock dividend 3,500

Common stock dividend 7,860

ASSIGNMENT 2

2.1 Ratio Analysis of Adam Crop and Aron Crop

Current ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Total Current Assets = 101 &

Total Current Liabilities = 54

Adam Corp. =

=1.8704

According to the Annual report-2012 of Aaron Corp., We found that,

Total Current Assets = 82 &

Total Current Liabilities = 60

Aaron Corp. =

= 1.3667

Acid test ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Cash = 17,

Accounts receivable = 23 &

Short-term investment = 6

Adam Corp =

= 0.8519

According to the Annual report-2012 of Aaron Corp., We found that,

Cash = 8,

Accounts receivable = 20 &

Short-term investment = 7

Aaron Corp. =

=0.5833

Debt ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Total liability = 70 &

Total assets = 187

Adam Corp. =

= 0.3743

According to the Annual report-2012 of Aaron Corp., We found that,

Total liability = 69 &

Total assets = 179

Aaron Corp. =

=0.3855

Interest coverage ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Earnings before interest and tax (EBIT) = 78 &

Interest expense = 8.

Adam Corp. =

=9.75

According to the Annual report-2012 of Aaron Corp., We found that,

Earnings before interest and tax (EBIT) = 58 &

Interest expense = 6.

Aaron Corp. =

=9.67

Account receivable turnover ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Net credit sales = 390 &

Accounts receivable = 23 & 24.

Adam Corp. =

= 16.5957

According to the Annual report-2012 of Aaron Corp., We found that,

Net credit sales = 328 &

Accounts receivable = 20 & 19.

Aaron Corp. =

= 16.8205

Inventory turnover ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Cost of goods sold = 150

Inventory = 53 & 48

Adam Corp. =

= 2.9126

According to the Annual report-2012 of Aaron Corp., We found that,

Cost of goods sold = 120

Inventory = 47 & 51

Aaron Corp. =

=2.4490

Total assets turnover ratio =

According to the Annual report-2012 of Adam Corp., We found that,

Net sales = 390 &

Total assets = 187.

Adam Corp. =

= 2.0856

According to the Annual report-2012 of Aaron Corp., We found that,

Net sales = 328 &

Total assets = 179.

Aaron Corp. =

= 1.8324

According to the total asset turnover Adam Corp. is in stable position.

Return on assets =

According to the Annual report-2012 of Adam Corp., We found that,

Net income = 38 &

Total assets = 187.

Adam Corp. =

= 0.2032

According to the Annual report-2012 of Aaron Corp., We found that,

Net income = 44 &

Total assets = 179.

Aaron Corp. =

= 0.2458

Form the above calculation; it is clear that, Aaron Corp. uses its assets more efficiently than Adam Corp.

Return on equity =

According to the Annual report-2012 of Adam Corp., We found that,

Net income = 38 &

Shareholder’s equity = 117.

Adam Corp. =

= 0.3248

According to the Annual report-2012 of Aaron Corp., We found that,

Net income = 44 &

Shareholder’s equity = 110.

Aaron Corp. =

= 0.4

2.2 Scenario Analysis of Adam Crop and Aron Crop

There are several factors that help us to evaluate and compare between two or more companies. Those factors are briefly discussed below:

Liquidity

Liquidity ratio is such kind of ratio that reflects the amount of currency of a company. After analyzing the liquidity ratios of Aron Crop and Adam Crop it is found that Adam has more liquidity than of Aron Crop. So Adam Crop is in a favorable position in liquidity issue.

Solvency

Solvency ratios are that kind of ratios that represents how solvent the company with its assets to pay all its debt. The more solvent a company is the more profitability that company will possibly gain (Eisen, 2000). After analyzing all the solvency ratios of the Adam Crop and Aron Crop it is found that Aron Crop is more solvent than of Adam Crop. Because Aron has more return on assets and equity.

Profitability

Profitability analysis of a company represents the percentage of profit that a company makes against its assets and expenses. After analyzing the profitability ratios of Adam Crops and Aron Crop it is found that Aron Crop has a slight competitive advantage than Adam Crop. This suggests that in 2012 Aron Crop makes more profit by investing almost the same amount in the market.

Asset management

Asset management ratios helps a company to find out the assets utilization by that company in the entire year. This is important because if a company cannot utilize all of its assets it cannot be that much efficient (Eisen, 2000). After analyzing the assert utilization ratios it is found that Adam Crop has more advantage than Aron Crop because the assets turnover ratio of Adam Crop is 10 times in the year where this ratio for Aron Crop is only 8%.

2.3 Limitations in Investing in Adam Crop or Aron Crop

When investing in a company an investor must find out the factors that make his investment profitable. So in Susana Corporation wants to invest in Aron and Adam Corporation it must find out which company is stronger (Reid and Myddelton, 2000). But in finding this Susana Corporation will face some problem. The first limitation that Susana Corporation will find in investing in these companies is that none of these companies ratio or scenario analysis shows that which company will do well in the future. Besides it is also an important fact that both of these companies are almost the same in the financial analysis. Because Adam Crop is good on profitability ratio and asset utilization ratio where Aron Crop is good in liquidity and solvency ratio. So these limitations Susana Corporation might face when selecting a company best between Adam Crop and Aron Crop.

References

  1. Eisen, P. (2000), “Accounting. Hauppauge; Debt ratio”, 2nd edition, N.Y.: Barron's Educational Series.
  2. Fridson, M. and Alvarez, F. (2002), “Financial statement analysis; Current ratio”, 4th edition, New York: John Wiley & Sons.
  3. Hermanson, R., Edwards, J. and Maher, M. (1998), “Accounting principles; Limitations before making an investment”, 4th edition, Homewood, IL: Irwin.
  4. Kanji, G. (2002), “Measuring business excellence; Evaluation of companies”, 3rd edition, London: Taylor & Francis Books Ltd.
  5. Reid, W. and Myddelton, D. (2000), “The meaning of company accounts; ratio analysis”, 1st edition, Aldershot: Gower.
  6. Wild, J., Bernstein, L. and Subramanyam, K. (2001), “Financial statement analysis; profitability of a company”, Boston, Mass.: McGraw-Hill.
  7. D'Amico, V., D'Amico, T., Bukta, M. and Palmer, T. (2002). Principles of accounting. Toronto: Prentice Hall.
  8. Hillman, A., Kochanek, R. and Reynolds, I. (1989). Principles of accounting. Chicago: Dryden Press.
  9. Lerner, J., Cashin, J., Fulks, D. and Lerner, J. (2001). Principles of accounting. New York: McGraw-Hill.
  10. Reeve, J., Warren, C. and Duchac, J. (2007). Principles of accounting. Mason, OH: Thomson/South-Western.

Page | 1

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.