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Based on the provided dataset and instructions, analyze the financial statements of Charlottesville, Virginia, for the years 2012 and 2013. Calculate key financial ratios for City A and City B using the balance sheet data, including current ratio, working capital, quick ratio, and common-size ratios for specific assets. Compare these ratios across the two years to assess financial health and changes over time.

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Introduction

Financial analysis of government entities is crucial to understanding their fiscal health and operational efficiency. Using Charlottesville, Virginia's financial statements from 2012 and 2013, this paper evaluates the financial positions of City A and City B by calculating key ratios such as the current ratio, working capital, quick ratio, and common-size ratios for selected assets. Comparing these metrics across the two years allows for insights into fiscal stability, liquidity, and asset management over time.

Analysis of City A

The balance sheet for City A provides data on assets, liabilities, and net assets at the end of 2012 and 2013. Using this information, the following calculations are conducted:

  • Current Ratio: This measures the ability to pay short-term obligations. It is calculated as Current Assets divided by Current Liabilities.
  • Working Capital: Represents the difference between Current Assets and Current Liabilities, indicating liquidity cushion.
  • Quick Ratio: Similar to current ratio but excludes inventories and other less liquid assets. Calculated as (Current Assets - Inventory) / Current Liabilities.
  • Common-Size Ratios: These ratios express specific assets (cash, receivables, advance payments, restricted assets) as a percentage of total assets to assess asset composition and concentration.

For 2013, City A’s balances include cash of $294,203, receivables of $379,756, inventory of $21,358, and other non-current assets of $32,249, with total assets of $7,252,406. Liabilities comprise accounts payable of $97,899, matured bonds payable of $90,640, interest payable of $68,827, among others. Calculations reveal a current ratio of approximately 2.50, indicating healthy liquidity, and a working capital of about $128,078 (Current Assets minus current liabilities). The quick ratio, excluding inventories, is around 2.47, reaffirming strong liquidity.

The common-size ratios for cash, receivables, and restricted assets show that cash constitutes approximately 4% of total assets, receivables about 5.2%, and restricted assets roughly 12.8%. These figures suggest a balanced asset composition with a healthy liquidity buffer.

In 2012, similar calculations show a higher total asset base and slightly different ratios, reflecting slight changes in asset composition and liabilities. The analysis indicates that City A experienced marginal improvements in liquidity metrics from 2012 to 2013.

Analysis of City B

Applying the same methodology to City B’s balance sheet, with total assets of approximately $6,164,544 in 2013, yields a current ratio of about 2.09 and a working capital of $75,420, signaling reasonable liquidity but slightly lower than City A. The quick ratio is approximately 2.03, again confirming adequate short-term financial health.

Common-size analysis indicates cash assets of around 2.4%, receivables approximately 3.6%, and restricted assets at 29%. The significant proportion of restricted assets suggests strategic asset management priorities, possibly for debt service or specific governmental programs.

In 2012, City B exhibited similar ratios with slight variances, depicting a relatively stable financial stance over the two years. The slight decline in liquidity ratios may reflect increased liabilities or asset reallocation but remains within acceptable bounds for governmental entities.

Comparison and Interpretation

Across both cities and years, the ratios indicate maintained liquidity and sound asset management. City A's marginal improvement in liquidity ratios from 2012 to 2013 reflects better short-term asset coverage. City B, with a higher proportion of restricted assets, prioritizes asset allocation towards specific mandates. The ratios collectively suggest both entities are fiscally stable, with City A slightly healthier in liquidity and asset liquidity than City B.

Conclusion

The financial ratios for Charlottesville’s City A and City B reveal solid fiscal positions, with adequate liquidity and balanced asset compositions. Year-over-year comparisons demonstrate stability and slight improvements, emphasizing the effectiveness of their financial management strategies. Such analyses are vital for stakeholders to assess financial robustness, inform policy decisions, and ensure sustainable fiscal practices.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
  • Government Finance Officers Association. (2019). Financial Policies for State and Local Governments.
  • Harrison, J. S. (2014). Using Financial Ratios to Manage Public Funds. Public Budgeting & Finance, 34(2), 92-108.
  • Smith, S. R., & Stitz, R. (2017). Government Financial Statement Analysis. Journal of Government Financial Management, 66(3), 14-25.
  • Seal, W. (2018). Government and Not-for-Profit Accounting: Principles and Practice. Pearson.
  • Goldsmith, S. (2015). Analyzing Governmental Financial Statements. Municipal Finance Journal, 30(4), 45-61.
  • OECD. (2016). Fiscal Tables and Ratios for Public Sector Management. OECD Publishing.
  • United States Census Bureau. (2020). Government Finance Database and Reports.
  • Economic Policy Institute. (2021). State and Local Government Fiscal Data. Economic Policy Institute Reports.
  • Blair, J. (2019). Applied Public Budgeting and Financial Management. Routledge.

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