Week 5 Peer responses Uregent!!!
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week_5_peer_responses.docxGuided Response: Review at least two of your classmate’s posts. Respond to at least two classmates by commenting on how the articles they found were similar or dissimilar from your own. What can you add in regard their advantages and disadvantages?
Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.
Week 5 - Discussion 1
Peer 1:
Week 5 Discussion 1 Anthony Yonek Email this Author 10/1/2016 12:25:35 PM
My apologies for this being late. I had done them early to allow me time to work on the final assignment during the week and I forgot to post them.
Calculating ratios are useful because they can provide you with information about specific information about a company’s financial health. There are numerous calculations that can be made so it is important to determine what number(s) you want to know about a company. For example by calculating a company’s current and quick ratio, you can determine its short term debt paying capacity and the immediate short term liquidity. On advantage of measuring these two number is that “Namely, the static measures are quick and easy to compute, and they focus on the impact on liquidity of all current liabilities, whereas the CCC only focuses on the impact of accounts payable (Cagle, Campbell, & Jones, 2013, n.p.).”Another advantage of the quick ratio is that it removes the inventory from the calculation as it is not always considered liquid when trying to determine a company’s liquidity position. One of the disadvantages of using the quick ratio is that it only shows the liquidity of a company at a specific point in time.
Inventory turnover is basically a measure of the number of times inventory is sold or used during a specific time period. The inventory turnover equation is fairly simple: you take the costs of goods sold or net sales and divide that by the average inventory. The article that I read for this uses a food company for their example. By using the ITR equation you can determine how much of the inventory is actually being distributed. One other thing I found interesting was how the author framed it in a way that could help his business by relaying that information to the customers, and use it as a relationship building tool. “By advocating the gradual cutting back on purchases, you make a statement to your customers about your commitment to the-long-term success of your partnership. You will also demonstrate your integrity and win their trust (Main, 1996, n.p.).”
References
Cagle, C., Campbell, S., & Jones, K. (2013) Analyzing Liquidity: Using the Cash Conversion Cycle, Journal of Accountancy 215(5), 44-48. Retrieved from http://eds.a.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?sid=cd784778-1590-4741-9f08-0282a77db9d9%40sessionmgr4008&vid=5&hid=4203
Main, B. (1996) The Inventory-Turnover Ratio, ID: The Voice of Foodservice Distribution 32(4) , 33. Retrieved from http://bi.galegroup.com.proxy-library.ashford.edu/global/article/GALE|A18456858/1dd9390b8f1b695b9fb5366a06ffd952?u=ashford
Peer 2:
The first article I reviewed was “An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction”. The article explores the idea that financial ratio analyses assist in determining the stability of a small business by comparing the businesses ratio trends to other similar small businesses within an industry. The study focuses on identifying business trends through the comparison of financial ratios. One advantage of this ratio analysis is that the study finds that the analyses are very accurate in determining the future of a company and if financial struggles are in the company’s future. One issue identified with this process is “that the industry-borrower relative ratios such as -1:2 and 1:-2 are computationally equivalent (-.5:1). Clearly, these ratios convey entirely different meanings and this occurrence is likely to mislead the analyst.” (Ednlister, 1972)
The second article I reviewed was “The Analysis and Use of Financial Ratios: A Review Article.” The article discusses the two primary reasons financial ratios are used. As with the first article reviewed, the article discusses the use of financial ratios to predict corporate failure. The second reason, which is definitely an advantage to the company is the use of financial ratios to determine what future sales and profits will be. This analysis is helpful in determining future company stability and can be a useful tool when changes or additions are needed. A negative discussed in the article are skewed results based on varying factors such as location. If behavioral assumptions are not in-line, then the analysis could provide inaccurate information.
Both articles were informative and focused on the financial benefits of using financial ratio analyses to predict the future of a company. The articles prove that the ratio approaches discussed above are incredibly accurate when the data used is accurate and ratios are correctly reflecting the information needed to create the ratios.
References:
Ednlister, Robert O. Journal of Financial & Quantitative Analysis. March 1972, Vol. 7 Issue 2, p1477-1493. 17p., Database: Business Source Elite
Barnes, Paul. Journal of Business Finance & Accounting. Winter87, Vol. 14 Issue 4, p449-461. 13p. , Database: Business Source Elite
Week 5 - Discussion 2
Guided Response: Review several of your classmates’ posts. Respond to at least two classmates who have chosen a different business owner and explain whether you would have identified the same ratios as your classmate. What other ratios may be helpful? Do you agree or disagree with their use of the ratio? Explain.
Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.
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