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Memo to Ceo, Riordan Manufactoring

Essay by   •  December 16, 2011  •  Case Study  •  497 Words (2 Pages)  •  3,783 Views

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TO: CEO, Riordan Manufacturing, Inc.

FROM: Accounting Dept.

DATE: September 5, 2011

SUBJECT: Analysis Report

The accounting department has been running an analysis of the company using liquidity, productivity, and solvency ratios along with both a horizontal and vertical analysis. These different types of analysis's can help determine Riordan's financial position as well as the overall performance. The information gathered will help assist management, creditors, and investors in making important decision about our company.

LIQUIDITY RATIOS: CURRENT RATIO

In 2004, Riordan's current ratio was 2.429 and in 2005 the current ratio improved to 2.087. The decrease in this ratio provides information to creditors and investors if Riordan is able to pay current liabilities and if they are financially stable.

LIQUIDITY RATIO: RECEIVABLES TURNOVER

According to the analysis, Riordan is reporting Sales without the division of credit and cash so the Accounts Receivable Turnover Ratio could be smaller. A high turnover indicates effective granting of credit and collection from customers. In 2004, Riordan reported 8.14 times (average of $5,657,216) and in 2005 the company reported 8.38 times (average of $6,062,838).

SOLVENCY RATIOS: DEBT TO TOTAL ASSETS (DEBT RATIO)

Riordan's debt ratio increased from 2004 to 2005 by .001 which indicates a slight increase in debt relative to assets.

PROFITABILITY RATIOS: OVERALL EFFICIENCY AND PERFORMANCE

Riordan's gross profit margin was 17% in 2005 and 19% in 2004, which is a decline in profit. The company made 17 cents per dollar in 2005 compared to 19 cents per dollar in 2004.

Riordan has experienced a marginal decline in Assets but is able to pay liabilities according to the Current Ratio, however, the Gross Profit margin declined. The Debit Ratio slightly decreased, but the Accounts Receivables turnover increased, meaning the company is effectively collecting on accounts. Riordan is successful in maintaining asset value, collecting accounts, and paying liabilities, but should increase the profit from sales by reducing expenses and developing efficient processes.

Many companies are facing hard economical times; unfortunately we are unable to compare Riordan's financial and performance against the industry's average at this time. In viewing the given ratios, we can determine that Riordan Corporation's ability to meet short-term obligations has slightly decreased. Although, the ability to meet short-term obligations has decreased, they maintain a high ability to convert assets to cash. Riordan has maintained the ability

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