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Yellow Leaf Fashion Case Study

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The purpose of this report is to measure the liquidity, activities, profitability, and coverage of Yellow Leaf Fashions Inc. by computing various ratios to evaluate their financial position and performance.
The Current ratio and current cash debt coverage ratio will analyze the liquidity of Yellow Leaf Fashions Inc. The liquidity ratios will measure the ability of Yellow Leaf Fashions Inc. to meet their short-term obligations.
Current ratio calculation: Current Asset / Current Liabilities = $2,960,278 / $612,792 = 4.83.
Findings of the current ratio: A current ratio of 4.83 means that Yellow Leaf Fashions has more than 4 times the amount of current assets than current liabilities. In other words, for every dollar of current debt, Yellow Leaf …show more content…
Yellow Leaf Fashions Inc. collects their average accounts receivables 3.02 times a year. Consequently, it takes approximately 121 days (365 days/3.02) for Yellow Leaf Fashions Inc. to collect payment on their receivables. This suggests that Yellow Leaf Fashions has issues collecting on credit sales; furthermore, it could lead to an excessive amount of bad debt.
Asset turnover ratio calculation: Net Sales / Average Total Assets = $2,919,800 / ($3,167,278 + $1,971,082) / 2 = 1.14.
Findings of the asset turnover ratio: The asset turnover ratio measures how efficiently Yellow Leaf Fashions Inc. uses their assets to generate revenues. The ratio calculates the amount of money earned per dollar invested. The asset turnover ratio for Yellow Leaf Fashions is 1.14; likewise, this indicates that the company will earn $1.14 for every dollar invested. Furthermore, it shows that Yellow Leaf Fashions are using their assets in an efficient manner.
Yellow Leaf Fashions profitability were evaluated by calculating the profit margin on sales ratio, as well as, the return on assets ratio. The profitability ratios will measure the operating efficiency of Yellow Leaf Fashions and the revenue that is generated after expenses and losses have been …show more content…
The Return on Assets Ratio determines how efficiently Yellow Leaf Fashions utilizes its assets by comparing the net income to the average total assets. In other words, the ratio will gauge how efficiently the assets are used to generate a profit.
Findings for the return on assets ratio: This ratio indicates how well Yellow Leaf Fashions Inc. is performing by comparing the profit it generates to the capital it has invested in assets. Yellow Leaf Fashions has a ratio of 0.3189; meaning every dollar invested during the year produced 31.89% profit, or approximately 32 cents per dollar.
The results of the profit margin ratio and the return on assets ratio shows that Yellow Leaf Fashions effectively utilized their assets in producing a profit.
The calculations for the cash debt coverage ratio and the debt to asset ratio will measure the ability of Yellow Leaf Fashions to fulfill its obligations to lenders. The coverage ratios are used to evaluate the financial health and position of Yellow Leaf Fashions regarding their financial

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