1814 Words Oct 20th, 2014 8 Pages
MEMORANDUM
Date: November 9, 2013
To:

Chief Executive Officer

From:
RE:

COMPANY G – FINANCIAL ANALYSIS YEAR-12

CURRENT RATIO
The Current Ratio is used to identify whether or not a company can pay its current obligations.
This ratio takes into consideration the current assets and current liabilities from the balance sheet and measure the company’s ability to pay their short-term liabilities. In most cases higher the ratio the more able the company is to paying their current obligations and is much more desirable.
The Current Ratio calculation is as follows: Current Ratio equals Current Assets divided Current
Liabilities. Company G has a Current Ratio for YR12 of 1.77. Comparing YR12 to YR11 the company’s Current Ratio
When comparing this ratio year over year, Company G has increased it Day’s Sales in
Receivables slightly from 11.1 in YR11 to 11.9 in YR12. 11.9 is well below the median ratio of
13.5 and slightly above the 11.3 1st quartile. This is a definite strength for Company G.

DEBT RATIO
The Debt Ratio measures how much a company is leveraged. This ratio is defined as total debt to total assets. It in essence measures the amount of assets that are financed through debt. The higher the debt ratio percentage the more the company is leveraged; it also is a sign of higher risk.
It depends on the industry whether higher Debt Ratios are better than lower ones. A lower Debt
Ratio can also show that a company is not using debt for its advantage. The Debt Ratio formula is: Debt Ratio equals Total Debt divided by Total Assets. Company G’s Debt Ratio percentage had increased slightly from 28.34% in YR11 to 29.76% in YR12. Comparing YR12’s 29.76% is above the 75th quartile of 30.0% for the industry. This is a strength for Company G.

TIMES-INTEREST EARNED
The Times-Interest Earned ratio is used to determine a company’s ability to stay on top of debt payments and shows how many times an organization can pay its interest payments. A reasonably high ratio in this area would be desirable, however, too high a ratio can be considered undesirable and may mean the company has a lack of debt. This ratio is calculated using

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