Memo
To: Entrepreneur D
From: Student cc: Date:
Re:

The financial statement evaluation is complete as agreed. Outlined in this memo is an outline of the corporate stability of Company G. Listed are 13 ratios used to determine financial strengths and weaknesses. Each ratio is individually explained so there is a clear knowledge of what the gathered numerical information implies. Lastly, the company is compared with other companies in the home improvement industry to determine if it meets market standards.

Current Ratio – 1.75

The company’s has a current ratio of 1.75 placing it in 58th percentile which is an indication of weakness. The Company G’s current ratio compared to last year is on a downward trend. That means that for each dollar spent, only 75 cents can be saved. This ratio is used to establish the company’s capacity to cover short-term financial obligations. It is calculated by dividing current liabilities by current assets. A company ratio of less than one is an indicator that signals the likelihood of Company G’s inability to cover short-term debts if they became due and payable. The company with the lowest ranking was Home Depot and Company G is vaguely beating their numbers. This is a weakness for the Company G. The company’s current ratio drops beneath the first quartile of 3.1 and also under the second quartile of 2.1.

Acid-test Ratio – 0.42

This is a stringent indicator calculated similarly to the current ratio determining a company’s ability to pay off short-term debt. A ratio less than 1.00 designates that a company may not be able to pay existing debt if it immediately came due. The acid-test does not allow the inclusion of inventory sales to help pay liabilities. Ratio calculations omit inventory sales before dividing current liabilities. The acid test ratio is less than the working capital ratio, this