The purpose of this report is to provide a brief analysis of the financial statements and ratios calculated of CoolSprings Furniture. The analysis is essential to make rational decisions that are important for the growth of business. The analysis determines the actual financial position of the company. The analyses for different parts of the financials are categorized in each section below.
Transactions
The weekly transactions of CoolSprings show that there are high cash inflows and cash outflows in routine activities such as paying off expenditures, fulfilling short-term obligations, and receiving cash on sales. It shows that the company relies on cash purchases and sales to maintain its strong position in the market. However, it shows that its business activity is significant which involves a large number of transactions taking place frequently. The record keeping and allocation of money for different purposes reveal that CoolSprings is efficiently managing its business operations.
Income Statement
The income statement of CoolSprings shows a high net profit, but the operating expenditures of the company are not in control of the management. The staff salaries are much high that show the company should control them. However, the cost of goods sold is also high, but the reason is the use of the heavy material in the manufacturing of furniture. In short, there is only need to control and manage operating expenses that may result in a loss in future that could be difficult for the business to manage (Warren, Reeve and Duchac 330).
Balance Sheet
The balance sheet of CoolSprings indicated that it has the potential to earn high profits in future. The substantial cash reserve is the main source that can be used to purchase new raw materials. Also, CoolSprings has a variety of non-current assets including the building that can be utilized to generate more income from the operations. Although mortgage liability is the threat for the company, it has different assets that can be used to pay off its current and long-term obligations and avoid bankcruptcy (Needles and Powers 221).
Ratios
The liquidity position of the company was strong as the value of current ratio was 3.38. CoolSprings was efficient in recovering the amount of receivable in approximately two months. The asset turnover ratio of 1.70 indicated that CoolSprings was efficiently utilizing its current and non-current assets to generate revenues. The overall performance of the company was effective, and it had high liquidity position as compared to others in the same industry
The value of debt to asset ratio was 0.29 that show the company had more assets as compared to liability. The shareholders could claim around 41.6 percent of the assets. The financial leverage of Coolspring was weak as the company had long-term liabilities in the form of a mortgage. The value of 7.28 of the times interest earned shows that the company had generated potential profit that was seven times higher than the actual interest expense and it is positive sign for the debtholders (Fridson and Alvarez 143). The net profit margin of CoolSprings was 9.48 percent that shows the company is weak in controlling and managing its operating expenses as almost half of the revenues are utilized by revenue expenditures. The return on equity was 0.388 that show the company was not generating high profit by utilizing its capital.
Recommendations
The analysis indicates that the company is performing well in the competitive market. However, there is a need of some control over expenses to satisfy the stakeholders of business that the company is effective in generating high profit. The company should adopt strict cost controls to keep its cost and operating expenses low (Eda, Erdoğan, and Ömürbek 36). It should improve the efficient of its operations and administrative staff to bring efficiency in the business. The company should try to increase its sales by targeting large number of customers. The company should also focus on developing high quality products that could help in the international market.
Works Cited
Eda, Oruç Erdoğana,, Murat Erdoğan and Vesile Ömürbek. “Evaluating the Effects of Various Financial Ratios on Company Financial Performance: Application in Borsa Đstanbul.” Business & Economics Research Journal. 6.1 (2015): 35-42.
Fridson, Martin S. and Fernando Alvarez. Financial Statement Analysis: A Practitioner's Guide. Danvers: John Wiley & Sons, 2011.
Warren, Carl S., James M. Reeve and Jonathan Duchac. Financial & Managerial Accounting. Mason: Cengage Learning, 2008.
Needles, Belverd E. and Marian Powers. Financial Accounting. Mason: Cengage Learning, 2010.
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