Accounts: Generally Accepted Accounting Principles and Assets Essay

Executive summaryThis report has been do to evaluate the financial performance of the Mountainarious riotous companion for the possessor to tie in a meeting with the bank for future day sanctioning loan. This report offers an estimation and investigation of the symbolise and future addition capacity runniness and financial constancy of ltd. Procedures of study comp start wind of vertical and horizontal epitome as well as ratios such(prenominal) as debt, up-to-date and quick ratios. be calculations includes rates of re turning on sh arholders equity, count assets and earnings per share to denomination a few .All calculations have been shown in the appendices. Results of data analysed explains that the ratios are to a lower place industry averages .In particular, comparative performance is poor in the areas of profit margins, liquidity credit surmount and inventory management. This report finds the prospects of the corporation in its stream side are not positive .The major areas of weakness posit further investigation and changes by the management.See more than Experiment on polytropic process EssayINTRODUCTIONMountanarious Sporting Co. a well-reputed origin possess by a sole- possessor Steve Donne that has been a high-end specialization betrayer of branded, exclusive fair goods and merchandise for the past 11 familys. Steven Donnie had always been a fanatic in the field of sports. Donnie as an owner is well-versed in customer-service and product knowledge, expertise in setting his storehouse according to the latest needs and had a long personality. The MSC has always been a popular store at Barron, Ontario and in like mode with the local sports community and organizations, local gyms coaches and campaign clubs by promoting the merchandise on tap(predicate) in the store by Donnie.With the offset of brand-new stores like big-box retailers, specialty/boutique and online services the competition increase and hence blue go ods were introduced to bear on profitability in the business. Customers frequented the store therefore, Donnie is keen for an expansion of the existing store which will be an exclusive merchandising for both sporting equipment and soft goods. Donnie wants to statusinate the leased set of the store to create a new store with a separate staff, headed by Donnies wife Allison who previously worked as part-time at his store and also possess few retail experience in hardware and scater shop.Body of score pecuniary Statement Analysis is an information processing system knowing to provide data for decision making models, such as the portfolio extract model, bank lending decision models, and corporate financial management models. (Dr. Jawaharlal,2009,p.536) financial statement analysis or information are not employ in a vacuum there are the part of massive array of information available to investors , creditors, managers and some others to assess the past performance, circulati ng(prenominal) position, growing prospects and also used by financial institutions or banks to make a sound loan or credit decision.( Trotman & Gibbins,2005)Here we are making a business report which evaluates the performance of Mountainarious Sporting Co. to arrive at loan from Canadian Commercial Bank. With the given basic financial reports by the comp all we have used few methods of analysis which includes horizontal, vertical and trend analysis as well as ratios such as Debt, Current, acrid Test and Asset Turn everywhere ratios. We also used other ratios such as Return of tot Assets, Return on Equity , nett profit margin and so forth.Horizontal and vertical analysisThe Financial Statement analyses how gross revenue are increasing and whether the gross revenue are presumable for the company.The companys sales and gross profit positively grew from the social class 2003 to 2007 with a slight decrease of 15.6% in sales in the year 2005. The gross profit continuously incre ase with the entry of soft goods in the store although the merchandise found in the store contiguous penetration affected his sales considerably. Companys gross profit was 28.73% of net-sales in 2003 and it increased by 3.12% of net sales in 2007 which is a potent of good financial health and company is able to pay its operating(a)(a) and other expenses and build for future.Operating expensesThe companys total operating expenses continuously raised at a slow rate from 2004-2007 invite out in 2005 which express company is not maintaining its expenses properly and its vertical analysis also shows operation expenses were highest that were 29.68 %of the total sales in 2006 comparatively other 3 years. shed light on incomeThe company faced net loss rather of income in the year 2003 and 2004 overdue to the fire accident and the re-establishment of his store in the new location. clear Income hiked in 2005 and 2006 as Donnie introduced soft goods and promoted them with the local gy ms and running clubs. There was a loss again in 2007 Net Income as the company required a new strategy to develop the sales of soft goods as there were strong competitors. The company faced Net Loss of 4.92% of the total sales in 2004 yet it gained net income of 2.60% of the total assets in 2007. Here, the over only situation is that company is not so more profitable over the years.Retained earnings companys etymon retained earnings records fluctuations in all years, after added net income and subtracted net loss it shows increasing trend from 2004 to 2007 which seems company reinvest its retained earning where it butt creates harvesting opportunities.that is a positive sign for companies good financial health.Balance planing machineTotal current assets continuously move upward from 2005 to 2007. it was lowest in 2005 as there was superior competition in the market with the emergence of Big-Box Retailers, Speciality Stores and Online Sales and company needed more asset s to fund twenty-four hours to day operations. After 2005 there is a slight increase in the TCA and a sharp increase conspicuous in 2007 by 38%. In 2004 the TCA were 49.09% of the total assets and dropped to 47.50% of the total assets in 2007.The Net Fixed Assets reflects similarities in all the years whereas Total assets were raised from 2005 to 2007 which indicates the positive value of firms operations. The Net Fixed Assets were 43.12% of total assets in 2004 and 44.50% of total assets in 2007.The Total Current Liabilities increased in all the years and in 2005 there is a noticeable drop of 101.13% as the online sales increased. The introduction of the soft goods decreased the expenses as the company availed a good get along with better purchasing discounts and longer terms of payments in 2005. The TCL were 56.92% in 2004 and 36.45% in 2007 of the Total Liabilities and Equity of the company.The total long-term liabilities of the company increased due to the fire accident and t he re-establishment of the new store in 2003. In 2005 the TLT Liabilities increased due to the shareholders loan. In 2007 the TLT Liabilities increased as the owner had taken loan from some family members which was unsecured loan. The TLT Liabilities were 30.50% in 2004 and 31.23% in 2007 of the Total Liabilities and Equity. The Total Liabilities and Equity increased in 2004, decreased in 2005 and step by step increased thereafter.Profitability rough-cut Profit mete The gross profit margin of the company witnesses a significant increment from 2004 to 2006. Predominantly, the Companys Gross profit produced 26% in 2004 to 32.6% and 36.9% in 2005 and 2006 of net sales growth respectively. On the other hand this ratio experiences a visible fall in 2007 with 31.9%. Hence the situation of the company indicates a rise in cost of goods as there is unplanned purchase management.Net Profit Margin The Net Profit Margin experiences a forceful fall in 2003 and 2004 i.e. -0.8% and -4.9% respec tively and there was increment in the beside two years 3.8% to 6.1%. This increasing ratio shows company has better control over its costs. However, in 2007 it again loosed its net profit due to the higher(prenominal) cost of goods sold which create negative image of company. As the Gross Profit Margin dropped so as the Net Profit Margin witnessed a fall.Return on Equity-Mountainarious Sporting Co.s return on equity was increased in 2005 to 2006 by 34.2% and 40.7% respectively that is the indicator of how oft profit company generates with the money shareholders invested. But in 2007 company generated unaccompanied 15% on the shareholders investment which was 25.7% less than the previous year.Return on Average Assets-The return on assets was -8.11% in 2004 then it climbed continuously next two years from 5.7% in 2005 to 10.7% in 2006 which demonstrates that assets had made more benefits and company utilized its assets more effectively. Nonetheless, the company encountered a fall i n 2007 to 4.7%. It seems company is not able to handle its assets in a planned manner. liquidnessLiquidity is a measure of the firms cash position and it keeps a company in business in the picayune run. tart test/ quick ratio-This ratio indicates whether current liabilities could be paid without having to conduct inventory. Generally acid test ratio of 11 is considered able as a firm can easily meet all current claims. But in Mountainarious Sporting Cos outcome quick ratio from 2003 to 2007 is less than the standard ratio. It seems company would find it challenging to pay its current liabilities.Current ratio-the current ratio which measures the companys ability to pay current liabilities from its current assets. Current ratio is great than 1 ( current assets exceeds current liabilities) in all years from 2003 to 2007 but less than industry ratio that is 1.9 . In particularly, companys current ratio is acceptable when it is more then industry ratio. Therefore, its working gre at and financial position is not strong to lower the risk for creditors and ownerSolvencyDebt ratio-The debt ratio tells the proportion of a business assets that it has financed with debt. (Horngren, Charles T.,7th ed.) Mountainarious sporting cos highest debt ratio was recorded 87.42% in 2004 which indicates in 2004 company faced more financial risks. Then it started to decline from 2005 to 2007 by 78.53% to 67.69%. It seems now companys leverage goes downward and financial risk is also decline.Cash Debt reporting Ratio cash debt coverage ratio was -11.41% in 2003 while it increased to 26.35% in 2005 which reveals companys better ability to carry total debts. Nonetheless it dropped to .035% till 2007 which means now companys ability is not sound to cover total debts with its yearly cash flow from operations.RecommendationsThe following recommendations have been made in order to the performance of the Mountainarious sporting Co.ProfitabilityMountainarious sporting Co. should review their pricing strategy and effectiveness of any advertising campaigns, including scaling back the level of advertising in the short run to minimise costs and improve profit margins. Stricter employment policies can also improve productivity and dilute employee absenteeism without any increase in costs.EfficiencyIf labour productivity does not lead to the operation of furious assets, it would be wise for Mountainarious to sell all idle assets to lax up cash whilst and from not sacrificing profits. Along with selling its idle assets, Mountainarious have to sully back excess shares from inventors. It should be noted that this decision would likely turn current investors away and encourage them to sell leading to as often larger than intended fall in equity. This could pose pay future investments.LiquidityAdopting a just in time approach for stocking shelves to reduce inventory costs and the risk of attaining unusable stock. A short term solution to free up cash flow would be to sell idle assets as discussed earlier, however with less assets, revenue and profits are limited. Alternatively Mountainarious can choose to no longer offer store credit, however it must be noted that this conservative approach whitethorn limit sales and net profits. Tighten customer credit policies such that the maximum receivable settlement period is at least the continuance of the shortest payable settlement period agreed to with suppliers.SolvencyReview product trade strategy and pricing in order to achieve price premiums and progress sales and profits, reducing their reliance on debt for finance. Sell idle assets to free up cash flow and pay off a portion of current liabilities to improve attractiveness and solvency to a capability lender.ConclusionFrom the in a higher place analysis horizontal and vertical, we can cease that the companies performance as equality to the industries average is below par and the current ratio, quick ratio shows that the current assets ar e not managed properly which further deepen the problem of quittance of the liabilities, secondly there is no cash in flow from the financing activities as shown in cash flow analysis and more over the assets were increasing in 2007 but they were not utilized in the manner so as to maximize the profits.The sales over the five fiscal years were showing the increasing trends still the profits were not as it is expected reason being the cost of good sold is similarly high and the inventory level is also high of the company, thus to conclude as the company do not have the repayment potential as evident from the above ratios, hence it wont be a wise decision to grant loan in the present scenario.ReferencesDr. Jawahar Lal, P2009, Accounting Theory and Practice,Himalaya Publishing House PVT.LTD., Mumbai, India.Horngren, Charles T.,7th edition,Financial accounting, Pearson, AustraliaKen Trotman & Michael Gibbins,3rd edition, Thomson, Australia.