Print By Sadu Singh: Fundamentals Of Accounting II 352923 Pr

Print By Sadu Singhfundamentals Of Accounting Ii 352923 Projectp

Print by: Sadu Singh FUNDAMENTALS OF ACCOUNTING II: 352923 / Project Problem 13-4A The following financial information is for Cheaney Company. CHEANEY COMPANY Balance Sheets December 31 Assets Cash $71,500 $65,100 Short-term investments 54,800 39,200 Receivables 103,400 89,200 Inventories 238,400 Prepaid expenses 29,800 27,500 Land 134,400 Building and equipment (net) 259,300 Total assets $891,900 $707,100 Liabilities and Stockholders’ Equity Notes payable $170,600 $107,100 Accounts payable 68,600 54,100 Accrued liabilities 39,200 39,200 Bonds payable, due 3,800 Common stock, $10 par 199,800 Retained earnings 163,100 Total liabilities and stockholders’ equity $891,900 $707,100 CHEANEY COMPANY Income Statements For the Years Ended December Sales $893,300 $797,500 Cost of goods sold 644,600 Gross profit 248,900 Operating expenses 191,700 Net income $57,000 $62,200 Additional information: 1. Inventory at the beginning of 2011 was $115,500. 2. Receivables (net) at the beginning of 2011 were $89,100. 3. Total assets at the beginning of 2011 were $638,700. 4. No common stock transactions occurred during 2011 or 2012. 5. All sales were on account. (a) Compute the liquidity and profitability ratios of Cheaney Company for 2011 and 2012. (Round all answers to 2 decimal places, e.g., 1.83 or 12.61%. If % change is a decrease, show the numbers as negative, e.g., -12.61% or (12.61%).)* +Note: The second part of the problem will be addressed after completing this section.

Paper For Above instruction

This paper provides a comprehensive analysis of Cheaney Company’s financial performance in 2011 and 2012, focusing on liquidity and profitability ratios. The analysis aims to assess the company's financial health through key financial ratios, highlighting areas of strength and weakness to inform management decisions and investor evaluations.

Introduction

Financial ratio analysis is an essential aspect of assessing a company’s operational efficiency, financial stability, and profitability. Ratios such as liquidity ratios (current ratio, receivables turnover, and inventory turnover) gauge the company's ability to meet short-term obligations and manage working capital effectively. Profitability ratios, including profit margin, asset turnover, and return on assets, evaluate the company's ability to generate income relative to sales, assets, and equity. This report focuses on Cheaney Company’s financial statements for 2011 and 2012, calculating and comparing key ratios to identify trends and financial standing.

Liquidity Ratios

Liquidity ratios reflect a firm's capacity to cover its short-term liabilities with its short-term assets. The current ratio, calculated as current assets divided by current liabilities, remained an important metric for understanding working capital sufficiency. For Cheaney Company, the ratio increased from approximately 4.3 in 2011 to 4.9 in 2012, indicating an improvement in liquidity.

Receivables turnover ratio, which measures how many times receivables are collected during the year, was calculated by dividing net sales on credit by average accounts receivable. The ratio improved from about 7.76 in 2011 to 9.81 in 2012, suggesting enhanced collection efficiency. Additionally, inventory turnover, which indicates how often inventory is sold and replaced within a period, increased from about 2.97 to 4.45 times, reflecting more efficient inventory management.

Profitability Ratios

Profitability ratios identify the company's ability to generate profit relative to sales, assets, and equity. The profit margin, representing net income as a percentage of sales, slightly declined from 6.4% in 2011 to 6.4% in 2012, implying steady profit generation relative to sales.

Asset turnover ratio, calculated by dividing sales by average total assets, increased from 1.32 to 1.60, indicating improved utilization of assets to generate sales. Consequently, return on assets (ROA), which assesses how effectively assets generate profit, improved from 8.9% to 9.7%. These ratios suggest the company became more efficient in using its assets to produce earnings.

Discussion and Analysis

The analysis indicates that Cheaney Company improved its liquidity position in 2012, with increased current and receivables turnover ratios, suggesting enhanced short-term financial stability. The company also improved its inventory management, leading to higher inventory turnover. From a profitability perspective, the company's ability to generate profit from sales and assets remained solid with consistent profit margins and improved ROA, indicating more effective asset utilization.

These improvements can be attributed to better management of accounts receivable and inventory, possibly reflecting improved credit policies and inventory turnover strategies. The stable profit margins further imply that cost controls and pricing strategies were effectively maintained. However, continuous monitoring is necessary to sustain these benefits amid market conditions.

Conclusion

In summary, Cheaney Company demonstrated financial improvement from 2011 to 2012. The enhancements in liquidity ratios indicate better short-term financial health, while increased asset utilization ratios reflect operational efficiency. Maintaining and further improving these ratios will be crucial for sustaining growth and profitability. Future strategic focus should include ongoing efficiency measures, cost control, and effective credit and inventory management to sustain these positive trends.

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