Analyzing Superior Living Balance Sheet
Memo
To: Superior CFO
From:
Date:
Re: Balance Sheet
Message:
I have been asked to look into the Superior Livings Balance Sheet, focusing on the working capital, current ratio, short-term and long-term debt; I will analysis the balance sheet and then report my findings to Superior Livings CFO’s.
The Working Capital is what Superior Living has available at this time, the amount of current assets that exceeds current liabilities. By using the assets that Superior Living can apply to its operations would be.
Cash Accounts Receivables
Inventories can be included, but again would we would have to be careful in case these inventories are not expected to be sold quickly.
Prepaid expenses and deferred income taxes, I would not be able to be included in being able to apply these funds to operations.
Looking at this I would include
$7,800 (cash) $7,900 (accounts receivable) $54,000 (inventory) Totaling $69,700
If we look at the current assets we can see that it exceeds current liabilities
$83,900 – 41,950 = $41,950 The current ratio is current assets/current liabilities. $83,900/41,950
The short term debt is current liabilities ($41,950) and long term debt is long term debt (and other long term liabilities) ($52,350).
Analyzing balance sheet
The current ratio indicates that the company would be able to pay its current liabilities and have funds left if needed for operations. The company seems to be in good financial shape, although it is advisable to compare companies in the same industry.
Conclusion
I would note that the cash on hand would pay the current long term debt or current liabilities, it is imperative that inventory be sold in order to pay both, or the accounts payable. If inventory is not sold then it could indicate a cash flow problem if inventory is not liquidated in a timely fashion. This is something to note as requiring attention to make sure the company remains healthy without a cash flow problems.
Reference
Phase 1 Individual Project 2. (2011). Retrieved from https://campus.ctuonline.edu/pages/MainFrame.aspx?ContentFrame=/Home/Pages/Default.aspx