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City of Charlottesville

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Submitted By letgod2015
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City of Charlottesville
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The following table presents the ratio analysis for City of Charlottesville for the financial years 2005 and 2006. There are seven ratios which were computed based on the financial data provided in Table 9.7 and Table 9.8 and the spreadsheet titled “Budget Tools 09 Exercises.” The ratios fall under three major categories which include the measures of liquidity, long-term solvency, and asset management ratios. City of Charlottesville | Financial Analysis | | | FY 2005 | FY 2006 | 1. Current ratio | Current Assets/Current Liabilities | | 4.30 | 5.77 | | 2. Working Capital | Current Assets-Current Liabilities | | 37,683,388.00 | 46,774,060.00 | | 3. Quick ratio | Quick Assets/Current Liabilities | | 4.30 | 5.77 | | 4. Debt-to-asset ratio | Total Liabilities/Total Assets | | 0.55 | 0.57 | | 5. Days payable ratio | All accounts payable*365 days/NPS Expenses | | 99.09 | 74.76 | | 6. Profit Margin Ratio | Surplus/Revenue | | -0.10 | -0.01 | | 7. Common Size Ratio | Line item amount/total amount | | | | | | General Fund | 46,712,426.00 | 68.1% | 59,241,158.00 | 76.6% | | Capital Projects Fund | 10,567,854.00 | 15.4% | 8,407,672.00 | 10.9% | | Social Services Fund | 897,285.00 | 1.3% | 866,126.00 | 1.1% | | Other Government Fund | 10,461,791.00 | 15.2% | 8,820,278.00 | 11.4% | | Total | 68,639,356.00 | 100.0% | 77,335,234.00 | 100.0% |

The liquidity ratios describe financial metrics used to determine whether a firm will be able to meet the short term maturing obligations and financial commitments. In the table above there are two liquidity ratios which include the current ratio and the quick ratio. The current ratio compares the current assets with the current liabilities while the quick ratio compares the quick assets with the current liabilities. In the table above, the quick assets equal the current assets in both fiscal years respectively because City of Charlottesville does not hold inventories. The Current ratio was at 4.3 in 2005 and 5.77 in 2006 and these were equal to the values of the quick ratio. By interpretation, the higher the liquidity ratios the better the financial position of the firm since he ratios indicate that the firm is able to meet the current and maturing obligations (Investopedia, 2015). Additionally, the liquidity improved in 2006 since the ratios were higher in 2006 than in 2005.
Solvency ratios indicate a firm’s ability to meet both the short term and the long term maturing obligations. The ratio also indicate the possibility, or lack thereof, of a firm defaulting on its debt commitments and obligations. In the table above, the solvency ratio is indicated as the debt-to-assets ratio which compares the amount of debt per a unit of assets. The ratio is below 1 in both 2005 and 2006. This indicates that the firm is able to meet its long term debt obligations. However, the ration increased from 0.55 in 2005 to 0.57 in 2006 indicating the position was gradually weakening (Investopedia, 2015).
The asset management ratios indicate how a firm utilizes and manages its assets. These values are presented under the working capital which increased in 2006 over the value indicated in 2005. The days payable ratio indicate the amount of time taken by a firm to pay its payables and lastly the profit margin ratio compares the surplus and the revenues as the common size ratios compare the allocations of the firm’s assets to various funds. Generally, the profit margin improve over the two years though the company still had a deficit in 2006. The DOP reduced to 74 days in 2006 below the 2005 value of 99 days indicating that City of Charlottesville was paying the payables in a shorter duration. These are indicators of an improving financial position. Lastly the common size ratios indicate that the entity allocated more assets to the general fund in 2006 having increased the fund from 68% in 2005 to 76% in 2006 (Investopedia, 2015).

References
Investopedia. (2015). Solvency Ratio Definition | Investopedia. Retrieved from http://www.investopedia.com/terms/s/solvencyratio.asp
Investopedia. (2015). Days Payable Outstanding (DPO) Definition | Investopedia. Retrieved from http://www.investopedia.com/terms/d/dpo.asp
Investopedia. (2015). Liquidity Ratios Definition | Investopedia. Retrieved from http://www.investopedia.com/terms/l/liquidityratios.asp

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