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ACC 308 Final Project Milestone One
Southern New Hampshire University
March 20,2022
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The Peyton Approved Company has witnessed a financially profitable year for the year
2017. However, some decrease has been seen in the ratio analysis report as per the managerial
point of view. Here, I will compare the accounts receivable turnover, current ratio, inventory
turnover, quick ratio, return on sales, gross margin, return on assets and return on equity
between the period of 2016 to 2017 to evaluate the company's overall financial health (Wahlen
et al., 2017).
At first, the current assets have been divided by current liabilities to determine the
working capital or the current ratio. Moreover, the quick assets have been divided by current
liabilities to determine the quick ratio. For example, the quick assets include accounts
receivables, marketable securities, and cash. Additionally, the net value of credit sales in the
given period of time has been divided by the average accounts receivable in the same period of
time to determine the accounts receivable turnover ratio. Usually, the inventory turnover ratio
takes a multiple-step process to calculate (Wahlen et al., 2017). At the first step, the beginning
inventory can be added to the previous year’s ending inventory and then, it can be divided by
2. After that, the average can be divided by the sold good’s cost to identify the ratio. Further,
the gross profit dollars of the company have been divided by its’ net sales dollars to calculate
the gross margin of the Peyton Approved company. Moreover, the net income has been
divided by the total revenue to calculate the return on sales ratio. The Peyton Approved
Company’s profitability associated with the equity amount of capital can be measured through
the return on equity. Basically, the common shareholders are investing in the equity capital
amount. In addition, the net income of the company has been divided by the equity of the
stakeholders to calculate the return on equity. At last, the net income is divided by the total
assets to calculate the return on assets (Wahlen et al., 2017).
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Comparison Ratio
2017
2016
Currwent Ration ( working
Capital)
5.78
5.18
Quick Ratio
4.89
4.60
Accounts Receivable
Turnover
5.91
5.04
Inventory Turnover
7.61
8.81
Gross Margin
68%
66%
Return on Sales
53%
52%
Return on Equity
125%
161%
Return on Assests
101%
109%
The analysis report of the Peyton Approved Company shows that a 1.20% decline has
been evident in the inventory turnover between the period of 2016 to 2017. However, it can be
improved with little hard work in the future as a very slight difference is there. Moreover, an
appropriate stock of inventory can be maintained to stabilize the ratio. For instance, inventory
turnover of Starbucks has been increased from 2013 to 2014, i.e., 5.43 to 6.23 relatively. On
the other hand, the sold good’s cost to sales ratio has been decreased to 52.8% from 54.1%
during these periods. The lower inventory costs of Starbuck are the results of supply chain
improvements and rising demand for Starbucks's products (Wahlen et al., 2017).
The analysis report of the Peyton Approved Company also shows that the return on
equity has been declined to 36% between 2016 to 2017. The company is getting less effective
as the return on equity has decreased in generating shareholder equity and making profits.
ACCOUNTING c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c c
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Further, the analysis report shows that the gross margin, quick ratio, return on sales, and the
current ratio seems to grow at a consistent rate. However, the company can gain a higher ratio
for the upcoming year by implementing quality feedback and the addition of extra work. c
A higher return on investment can be seen if the company's funds sit in a compounding
period. Even the profits and return on equity can propel with the rising compound interest. The
value of capital will increase in the future with the increasing interest rate (Wahlen et al.,
2017).
It concludes that the Peyton Approved Company is showing its growth potential by
maintaining its financial health every year. However, the company is facing little difficulties
and challenges with the return on assets and inventory turnover. The analysis of these two
financial conditions can be improved in the upcoming years by using assets to boost fixed and
current asset performance, decrease total assets, and increase net income.
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References
Wahlen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate Accounting: Reporting And
analysis (2nd ed.). Boston, MA: Cengage Learning.
