Inner City

1. Financial proportions Liquidity balance measure the avail strength of cash to pay debt. genuine Ratio = Current additions/ Current Liabilities 262,515/ 285,030= 0. 92 There is a problem meeting its swindle term obligations The best way to improve this ratio and better repose the vexation to cover its short-term obligations is to better manage current liabilities (accounts pay fits).Generate more(prenominal) service (cash) out of each sale by increasing profit (as long as it is competitive within the industry), reducing damages of goods sell (making the harvest-home with less cost or providing services with less costs) or finding efficiencies throughout the operating cycle. Asset Management Ratio record how successfully a company is utilizing its assets to generate tax revenues. Inventory Turnover= COGS/ fairish inventory 1,428,730/ 18,660= 76. 57 Indicate a shortage or light inventory levels, which may lead to a loss in moving in.Average days to sell the inventory= 365 days/ inventory turnover ratio 365/ 76. 57= 4. 8 Measure of the number of beats inventory is sold or utilise in a time period (a year). A funky turnover rate might point to overstocking, obsolescence, or deficiencies in the product line or tradeing effort. On the other hand, a eminent turnover rate might indicate inadequate inventory levels, which passel lead to a loss in business, as the inventory is too depression (stock shortages). dues Turnover= Sales/ Accounts Receivable 1,784,080/ 242,320= 7. 36 A low ratio implies the company should re-assess its credit policies in order o take care the timely collection of imparted credit that is not earning interest for the firm. age Receivable= 365/ Receivables Turnover 365/7. 36= 49. 6= 50 The receivables turnover ratio is usanced to calculate how well a company is managing their receivables. Total assets turnover= concluding Sales Revenue/ Average Total Assets 1,784,080/ 294,565= 6. 06 Measures the efficiency of a Co. use of its assets in generating sales revenue. Companies with low profit margins tend to set out lofty asset turnover, while those with soaring profit margins have low asset turnover. Debt Management Ratio measure the firms use of Financial Leverage and ability to avoid fiscal distress in the long run. The use of debt shadower improve returns to stockholders in good years and increase their losses in bad years. Debt Ratio= Total Liabilities (Total Debt)/ Total Assets (285,030+ 15,000)/ 294,565= 1. 02 All assets are financed by creditors and some losses are covered by creditors. Indicates the proportion of a companys debt to its total assets. It shows how much the company relies on debt to finance assets. The higher the ratio, the greater the risk associated with the firms operation.A low debt ratio indicates conservative financing with an opportunity to seize in the future at no significant risk. Profitability Ratio represents the % of total sales that Co. retains after incurring the direct costs (variable costs) associated with producing the goods sold. settle on Assets= net Income/ Average Assets 17,610/ 294,565= 5. 98% Indicates that the company is asset heavy. Net Profit Margin= Net Income/ Sales Revenue 17,610/ 1,784,080= 0. 987% A high percentage of each dollar generated by the company in revenue is actual profit Gross Profit Margin= 1,784,080-1,428,730)/ 1,784,080= . 20% Indicates that crying(a) margin isnt walloping enough to cover other expenses beyond cost of goods sold. Purpose of margins is to determine the value of incremental sales, and to guide price and promotion decision. Understanding and monitoring gross margins can help business owners avoid pricing problems, losing money on sales, and ultimately stay in business. Helps avoid offering prices that are too low or have costs that are too high to ultimately make a profit. 2. Strengths, Weaknesses, Opportunities, and Threats Strengths Fast Service/ delivery- supplied paint to contractors w ithin 24 hours, -Steady growth in its market, -Competitive price, -Cheap rent/ low overhead costs- gives a competitive advantage, -Cheap employee wages- nonunion organization, -Low product costs- low cost and high quality paint, -Excess capacity Weaknesses -Unorganized- operating with no management or financial influences, -Lack of consistent and reliable inventory control system, -No customer record (manual count) wastes too much time, -No office space, no explosive charge records, no shipping information -Undesirable ocation and building is in poor mark off old plant, and old equipment (dusty, dirty environment) -No sales personnel, -No computer, no database, -Inexperienced/ unskilled employees, -Lack of commissioning and employee empowerment -Narrow product line, -Bad cash flow insufficient financial resources to broth any changes, -Culture, -Lack of customer confidence customer perception as a company that negotiates price and unreliable to fill large orders. -Lag between time when they are paying their suppliers and employees versus time it takes to collect receivables from customers (30-60 days) Opportunities Expand product take off go after different segments, -Purchasing a computer to organize data and reduce needless paperwork, -Increase market share by taking large orders, -Hiring professional salesmen to ensure consistent growth and accountants/ consultants to identify problems and solutions Lower cost of goods sold, lower expenses due to Walshs salary, and lower bad debt. Threats -Market is in irksome growth- housing market and overall economy, -High bargaining power of suppliers -High threat of substitutes large Co are more reliable Threat of new entrants,low door barriers in paint manufacturing industry -Rumors that company is in difficult financial straits- unable to pay suppliers and owes a lot for payment on preliminary taxes, -No audit has been performed= IRS penalties Wash did not include his income taxes in his income statement he owes $38,510 in taxes. 3. Recommendations deep down 30 Days Pay his taxes before he gets audited Collect bad debt from clients Hire personnel to assist in several(a) tasks -Salesmen and accounting managers Grow business and solve current financial problems Within 90 Days Inner City Paint should keep records of inventory, finances, billing info. -They should invest in a computer and keep all records in a database to automatically calculate changes. Take a cut in high salaries Find and research new suppliers -To be able to extend timely delivery for large orders Minimize COGS Beyond 90 Days Buy more equipment and trucks Improve management skills and create policies Earn business of larger clients Manage business and growth of the company and to be able to acquire companies in the future that help attaining a larger market share.