Response to Classmates Discussions
kingstonman41
Week4Discussion1ClassmatesResponse.docxWeek 4 - Discussion Forum 1
Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
There two of my classmate’s discussion that need responded to. Joseph Choice and Shawnta Pierce
For this discussion, I am continuing the assessment of financial ratios for Domino's Pizza. Domino's Pizza current ratio for 2019 was 1.74 compared to 2018's current ratio, which was 1.49. Porter and Norton (2018) explain that a company's current ratio paints an excellent picture of a company's liquidity. Domino's quick ratio for 2019 was 0.88 compared to 2018's quick ratio which was 0.51. Like a current ratio, a quick ratio paints a picture of a company's immediate liquidity position using its most liquid assets which includes cash and cash equivalents excluding inventory and prepaid expenses. (Porter and Norton, 2018) IBIS World does not have information specific to Pizza Delivery Restaurants; however, there was information on fast food restaurants that provided some interesting statistics into the current and quick ratios for this industry. The fast-food restaurant industry's current ratios are 0.6, and quick ratio for the fast-food industry is 0.4 (Hyland, 2020). What was interesting to see is that Domino's Pizza far exceeded the industry average in both current and quick ratio. This is a good indicator that Domino's is in a good position with meeting its financial obligations by making good use of its current assets. Domino's has also improved its current and quick ratio year over year since 2015 with 2019 being the best year in these financial health ratios. (Morningstar, 2020) Domino's has been steadily working to improve its financial health ratios over the past ten years. In 2019, there was a significant increase in cash and cash equivalents held by Domino's, which increased by over $165 million. This was in anticipation of having to make payment of several debt agreements and pay for marketing activities that promote Domino's brand. (Domino's, 2020) I can agree that in 2019 there was significant advertising on Domino's part that helped improve sales for the company.
In reviewing Domino’s balance sheet, there was no contingent liability present. Porter and Norton (2018) explain that “contingent liabilities can be reasonably estimated and must be presented on the balance sheet before the outcome of the future event is known.” In digging in a bit deeper and reading the financial report, Domino’s makes mention that they currently have an appeals case open from a case tried back in 2016 where Domino’s Pizza LLC was found liable and judgment made against Domino's for $9 million for the death of a motorist who was allegedly hit by a Domino’s pizza delivery driver. (Domino’s, 2020). Domino’s chose not to report this as a contingent liability, as Porter and Norton (2018) mention that lawsuits are of considerable uncertainty and challenging to determine the amount of the potential loss. Domino’s continues to deny liability. I agree with the decision to disclose but not record the contingent liability on the balance sheet as this case is still involved in an appeals case. After extensive legal consultation, they determined not to record these contingent liabilities as the loss cannot be reasonably estimated. Disclosing but not reporting the lawsuit on their balance sheet had little to no effect on their financial statement. Companies such as Domino’s whose delivery methods are critical to its operation have safeguards in place for situations where one of their employees are involved in traffic accidents or other damages that may incur in the course of doing business. Their disclosing of a potential contingent liability does not change my assessment of the company. Domino’s management team is keen on ensuring that their financial ratios are trustworthy and do an excellent job of anticipating changes in conducting their operations by adjusting their amount of current assets.
References:
Domino’s Pizza. (2020). Domino’s Pizza Rating. Morningstar. https://financials.morningstar.com/ratios/r.html?t=0P000001R9&culture=en&platform=sal
Domino’s. (2020). Investors Relations 2019 Annual Report. https://ir.dominos.com/
Hyland, R. (2020). Fast Food Restaurants in the U.S. IBIS World. https://my-ibisworld-com.proxy-library.ashford.edu/us/en/industry/72221a/key-statistics
Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). https://www.cengage.com
Greeting Everyone:
Current Assets and Current Liabilities Analysis
The industry liquidity ratios for the current and quick ratio of E-commerce in which Amazon operates are 1.5 and 0.5 for the past three years. A current ratio is obtained by dividing current assets by current liabilities. Amazon's current ratio was 1.1 in 2019, which is the same as the 2018s current ratio. The company's Quick ratio in 2019 was 0.84, while in 2018, it was 0.85. The quick ratio represents the short term position of the company. A quick ratio that is higher than 1.1 indicates that a company is able to meet financial obligations using the liquid cash at hand. When the ratio is below 1.1, it means that the organization uses inventory and other types of assets in paying short-term liabilities (Porter, 2018). A current ratio indicates how able a company is able to pay debts within a year and how it is able to cover every dollar owned by the company.
Contingent liabilities refer to potential losses that may occur in the future, depending on certain outcomes. For example, warranty and pending investigation are some examples of contingent liabilities. These may be found under accrued expenses in any company like Amazon. The company did not disclose the contingent liabilities. I don't agree with how it treated them, whereby it discloses the statement but does not record the contingent liabilities. The company's way of treating financial statements may cause the company to incur losses at some point because of the failure to record contingent liabilities (Porter, 2018). These liabilities change my assessment of the company. This is because of details about contingent liabilities that are not recorded even though the statements are disclosed.
References
Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.)
