memo

ACC301 Case Instructions Fall 2021-4.docx Part 5 - Client Memo Student Responsibility - Prepare a Client Memo explaining how potential investors and creditors will use the Company's financial statements to make business decisions. (Prepared in Word. Use Memo Format. See "Writing a Memo" in the case module in canvas. Memo will be graded on grammar) Due Date: Wednesday, 10/6/21 by_11:59pm Rebecca Oubda case study part 3 ACC 301 Financial Ratios for Tom Saint 1. Profit Margin Profit margin= (950) / (7000) = 13.57% A higher profit margin usually indicates that the business is doing well. In our case the company has 13.57% which is a good profit margin. In other words, for every dollar earn, the company makes a profit of 13.57 cents. 2. Return on Investment (ROI) Return On Investment = Net Profit /Investment = (950)/(20,050) = 4.74% The ROI indicates how profitable the company is. A positive result such as 4.74% means that returns exceed costs. Therefore, the investment can be considered as a net gain. 3. Current Ratio Current Ratio= Current Assets / Current Liabilities = (19,750)/(3,300) = 5.98 times The ideal current ratio is a ratio of 2:1. The higher the ratio is the better it is For the company. In 2020 the company had a current ratio of 5.98 times, which shows that the company has a good liquidity position. 4. Debt to Equity Ratio Debt To Equity Ratio = total liabilities / Shareholder's Equity = 15,500)/(20,050) = 0.2743 This ratio indicates how much debt the company has per S1 of equity. A higher ratio indicates a higher degree of financial leverage and financial risk. For example, in the Tom Saint case for every $1 dollar of equity the company has $0.274 cents of debt. 5. Asset Turnover Ratio Asset Turnover Ratio = net sales /average total assets = 17,000)/(25,550) = 0.2740 Asset Tum Over shows the revenue earned by the organization from the resources invested by it. This ratio measures the efficiency of how well a company uses assets to produce sales. In Tom Saint case, for every Si invested in assets the company makes a sale of $0.2740 cents