ACC 308 Milestone One

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School

Southern New Hampshire University *

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Course

308

Subject

Accounting

Date

Feb 20, 2024

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docx

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4

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ACC 308 Milestone One Andrew Munoz Southern New Hampshire University
Based on the financial ratios from 2016 to 2017, the company exhibits strong liquidity as evidenced by the Current Ratio and Quick Ratio. Both ratios are well above the standard threshold of 1, with an increase from 5.18 to 5.78 in the Current Ratio and from 4.60 to 5.74 in the Quick Ratio. This indicates the company has significantly more current assets than liabilities, signifying a strong buffer to cover short-term obligations. The Accounts Receivable (A/R) Turnover has slightly increased from 5.53 to 5.91. This improvement suggests the company is becoming more efficient in collecting receivables, leading to better cash flow management. The Inventory Turnover ratio has markedly decreased from 107.19 in 2016 to 40.97 in 2017. A contributing factor to this change could be the recent shipment of $3,000 worth of ingredients received under FOB shipping point terms on 12/29/17, which was recorded before year-end. This addition to inventory, just before the close of the fiscal year, may have temporarily inflated the inventory balance, reducing the turnover ratio. While this does indicate a slower rate of inventory movement, it's important to consider the timing of such transactions and their immediate impact on year-end figures. Management should assess whether this is a timing issue or a trend indicative of decreased sales efficiency or potential overstocking. Profitability ratios like Gross Margin, Return on Sales (ROS), and Return on Equity (ROE) have seen some shifts. The Gross Margin decreased marginally from 66% to 65%, and ROE saw a significant drop from 160% to 125%. The high ROE in 2016 may be due to exceptional items or one-off gains, and the decrease in 2017 suggests a normalization of returns. ROS increased slightly, which implies that the company has managed to convert sales into profits more effectively.
Return on Assets (ROA) has decreased from 108% to 101%, indicating a slight decline in how effectively the company is using its assets to generate profit. Comparing financial ratios over time highlights the company's operational trends. The consistent liquidity suggests a strong cash position, but the inventory turnover rate’s decline could signal potential cash flow issues if unsold inventory continues to rise. It is essential to examine why inventory isn't turning over as quickly — whether due to market demand or purchasing practices. The slight decrease in Gross Margin could be due to increased costs of goods sold or lowered pricing to stimulate sales. In contrast, the increase in ROS suggests that the company has kept its operating expenses in check. The decrease in ROE and ROA indicates that the company might be over-capitalized or that assets are not being used as efficiently as they could be. It could also reflect an increased equity base following retained earnings from previous years. The impact of different compounding periods and interest rates on the future value of money is significant. More frequent compounding periods at the same interest rate will result in a higher future value due to the effect of compounding interest. For instance, monthly compounding will yield a higher future value than annual compounding. Similarly, higher interest rates will increase the future value of money, enhancing the company's investment returns over time. Our accounting practices adhere to the relevant financial reporting regulations and standards, ensuring transparency and accuracy. For example, the consistent decline in ROE and ROA is reported honestly, reflecting our commitment to ethical reporting. Such transparency
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supports management in making informed decisions, maintains investor confidence, and fulfills our regulatory obligations.