Harry Jones Current Ratio

A. Current Ratio: The ability for a company to pay short term obligations is measured by this ratio. In 2011 Company G moved from 1.86 to 1.77. Compared to the 1.9 Home Center Retail Benchmarks industry ratio, the numbers are below standards. Current Ratio represents values above 2 quartile industry benchmarks data (1.4 to 2.1). Current Ratio represents a weakness for Company G.

An organization’s current ratio shows how liquid the assets of the agency are by comparison to the short term debts that the agency must pay to continue its operations. This ratio is calculated by taking the assets that can be converted to cash within a year (current assets) and dividing it by the liabilities that are either currently due or will become due within a year (current liabilities). The current ratio, ideally, should be at

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

This ratio is similar to current ratio, except that it excludes inventory from current assets. Inventory is subtracted because it is considered to be less liquid than other current assets, that is, it cannot be easily used to pay for the company’s current liabilities. A company having a quick ratio of at least 1.0, is considered to be financially stable. It has sufficient liquid assets and hence, it will be able to pay back its debts easily (Qasim Saleem et al., 2011).

Jones over forecasts his inventory and has a low inventory turnover ratio. This drastically increases his accounts payable, as he isn’t able to pay due to low cash inflow. His account’s payable increased by nearly 9 percent in 2006. Nearly half of his current assets are in inventory. Also Jones isn’t able to take advantage of the cash discounts offered by his suppliers due to his slow cash collection process. In order to perform well, the company must improve its inventory system and its cash collection policies.

The current ratio is a liquidity calculation meant to measure a business’s capability to pay short-term obligations. This calculation is derived from company's total current assets divided by its total current liabilities. Steve Madden’s current ratio for the quarter ending in June of 2016 equaled 2.47. 2.47 would generally indicate that Steve Madden shows good short-term financial strength. Over the past 13 years, Steve Madden’s highest current ratio was 12.03 and its lowest was 2.03. Over that time frame its median current ratio was 4.83. Guess’s current ratio for the quarter ending in April of 2016 equaled 3.21. 3.21 would generally indicate that Guess may not be efficiently using its short-term financing facilities or its current assets.

11. Accounts receivable turnover and days sales in accounts receivable for the last three years:

Receivables Turnover: This shows the degree of realization in accounts receivables. Company N has a lower turnover rate, a lower rate implies that receivables are being held longer and the less likely they are to be collected. Also there is an opportunity cost of tying up funds in receivables for a long period of time. Company M is 29 times higher than company N.

Inventory turnover in days is an assistant figure of inventory turnover. The shorter of the days, the faster of the inventory turning to cash, and the better use of short-term capital. This figure of the firm was very high in 2001 and began to fell down from 2002,then lower than industry in 2004 and 2005.This indicates the management of the firm became better.

Current Ratio is the measure of short-term liquidity. It indicates that the ability of an entity to meet its

Accounts receivable turnover is the second method by which a company’s trade receivables’ liquidity can be evaluated (Gibson, 2011). Žager et al. (2012) noted turnover ratios should be as high as possible as this indicates a firm’s ability to convert its assets more often. 3M’s accounts receivable turnover for years 2007 and 2008 is shown in Exhibit 2. In 2007, 3M turned its accounts receivable over 7.12 times and 7.70 times in 2008. This calculates into a turnover of its accounts receivable every 51.28 days in 2007 and 47.38 days in 2008. The increase in accounts receivable turnover times per year (decrease in number of days to turnover accounts receivables) from 2007 to 2008 is a positive trend for 3M. It suggests, along with the prior calculation, the management of receivables is likely to be improving in efficiency.

These ratios help company in determining its capability to pay short-term debts. Liquidity ratios inform about, how quickly a firm can obtain cash by liquidating its current assets in order to pay its liabilities. General liquidity ratios are: current ratio and quick ratio. Current ration can be obtain by dividing company’s current assets by its’ current liabilities. Generally a current ratio of two is considered as good (Cleverley et al., 2011). Quick ratio also known as acid test determines company’s liabilities that need to be fulfilled on urgent basis. Quick ratio can be obtained by dividing quick assets by current liabilities. Quick ratio is considered as stricter because it excludes inventories from current assets. Generally a quick ratio of 1:1 is considered as good for the company. Higher quick

Accounts receivable turnover measures the average time it takes for a firm to collect on credit sales. Harley Davidson's accounts receivable turnover rate is 6.75 times for 2001 and 8.74 times for 2000. This accounts receivable turnover rate seems low and would indicate that Harley Davidson is able to turn their receivables into cash quickly.

As the creditors’ view, they prefer the high current ratio. The current ratio provides the best single indicator of the extent, which assets that are expected to be converted to cash fairly quickly cover the claims of short-term creditors. However, consider the current ratio from the perspective of a shareholder. A high current ratio could mean that the company has a lot of money tied up in nonproductive assets.

Throughout this essay I will be exploring how value added is calculated and to what extent value added, cash flow and profit are connected to a company’s sales performance. I will do this by introducing value added and the formulas in which they are calculated, mathematically and through accounting, the purpose why value added is calculated and the theory of Cox. Moreover, I will explain how value added is related to a company’s sales performance using an extended example. Nonetheless, cash flow is a measurement of a company’s money generated in the company in order to pay for expenses, and how this