Sample Finance Paper on Best People Inc. Financing Analysis

Current Ratio = Current Assets/Current Liabilities

Current Assets = $ 294,120

Current Liabilities = $ 66,840

Current Ratio = 294,120/66,840

=4.4

This ratio shows that Best People Inc is healthy and has enough resources that can meet its short term obligations.

Acid-Test Ratio

Acid-Test Ratio= (Cash+Marketable Securities+Receivables)/Current liabilities

Cash= $ 39,120

Marketable securities=$ 4,000

Receivables= $75,000 Acid-Test Ratio

 

Current Liability= $ 66,840

Acid-Test Ratio= (39,120+4,000+75,000)/66,840

=1.78

This acid-test ratio value is greater than the conventional acid-ratio of 1. It shows that Best People Inc. is financially strong enough since its short-term assets can cover for its immediate liabilities.

Debt to Owner’s Equity Ratio

Debt to Owner’s Equity Ratio = Total Liability/Owner’s Equity

Total Liability= $ 66,840

Owner’s Equity= $ 496,280

Debt to Owner’s Equity Ratio= 66,840/496,280

=0.1347*100

=13.47%

This means for every $100 the owner provided, $13.47 was borrowed. This is a low debt to equity ratio thus implies that Best People Inc. is a financially stable business.

Return on Sales (ROS)

ROS = Net Income/Net Sales

Net Income= $ 15,897

Net Sales= $278, 500

Return on Sales (ROS) = 15,897/278,500

=0.057*100

=5.7%

This means that for every $100 sales, Best People Inc. makes a profit of $5.7. This shows that Best People is operationally efficient.

Return On Equity (ROE)

ROE = Net Income/Owner’s Equity

Net Income= $ 15,897

Owner’s Equity= $ 496,280

ROE=15,897/496,280

=0.032*100

=3.2%

This means if I expected an average of 12-15% of return from my investment, Best people Inc. Does not meet my expectations. This is because the profitability of the firm doesn’t meet what I was looking up to during my investment.

Inventory Turn Over Ratio

Inventory Turn Over Ratio = Cost of Good Sold/Average Inventory

Cost of Good Sold=$ 154,500

Average Inventory= $ 73,000

Inventory Turn Over Ratio= 154,500/73,000

=2.114

This shows that the average inventory was sold or turned 2.114 times in that year.

This means if you are using Nike with an Inventory Turn Over Ratio of 4.5 and Starbuck Coffer with an Inventory Turn Over Ratio of 14.7 as a benchmark, Best People Inc. don’t turn over their inventory efficiently because their ratio is lower than both Nike and Starbuck Coffee.