Respond to this employee letter to the manager

To: Jane Doe, Accounting Manager

From: Sandra Calle, Junior Associate

Subject: Financial Statements FY 2019

Date: November 5, 2020

I was reviewing our financial statements. Below are my findings:

When reviewing financial statements, it is important to understand the industry and type of business under review. In our case, we are in the industry of performance apparel. This includes footwear and accessories for men, woman and children. When analyzing our financial statements and there is an understanding of our industry, investors can better "forecast risk and potential" return on their investment. It is also beneficial to understand the industry you are reviewing when comparing our performance to that of other similar corporations.

I took the liberty of calculating our short-term liquidity and our profitability in several different ways. Below are my calculations:

• Short-term Liquidity:
• Current Ratio- Current assets/Current liabilities
• 2,702,209/1,422,009= 1.9
• This measures our ability to pay short-term debt. It is preferable to be between 1.2-2.0. We are at a good standing for this.
• Working Capital- Current assets-Current liabilities
• 2,702,209-1,422,009=1,280,200
• This measures our ability to pay short-term debt as well.
• Cashflows from operating activities to current liabilities- cashflow from operating activities/current liabilities
• 92,139/1,422,009=0.06
• This measures our ability to cover our currently maturing obligations from recurring operations. Greater than 1.0 is preferred by investors and our creditors.
• Measures of Profitability:
• Gross Profit Rate- Gross Profit/Net Sales
• 2,470,533/5,267,132=0.47x100=47%
• This measures the profitability of our products.
• Typically converted to a percentage for better understanding.
• Return on Equity- Net income/Average total equity
• 92,139/2,150,087=0.04
• This determines the return earned on the stock holder's equity in the business.
• Net income as percentage of net sales- Net income/Net sales
• 92,139/5,267,132=0.017
• This indicates our management's ability to control costs.

As I was calculating the ratios above, it became clear that our company is doing OK but their is a lot of room for improvement. Compared to previous years, we had net income instead of loss which is a positive trend we will need to continue. Our return on equity for our stockholders and our ability to cover current maturing obligations arelow and should be a focus in our coming year.

Though I located our financial statements internally, these are available to the public via our website. This is the easiest and quickest way our potential investors or creditors can access this information free of charge. The access to this information can assist our potential investors in making the decision on purchasing common stock in our company or our creditors providing the much needed capital to further grow the business.