MBA-FPX5010_VitosGarciaJavierAndres_Assessment3_1

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1 Performance Evaluation (Javier A Vitos Garcia) Capella University Daniela Pavel Nov 12, 2023 MBA-FPX5010
Training-Accounting Tools and Practices 2 Summary Ace Company requested a $3 million loan for equipment and software development. I will evaluate Ace Company's financial statements for 2016 and 2017 to determine whether the loan will be approved. Account Receivable Basically, accounts receivable turnover tells you how often a company is paid for the products it sells in a given time period. We can determine the frequency of charges and the time it takes customers to pay off their debt. Ace Company's accounts receivable turnover ratio was 5.06 in 2017, while it was 4.68 in 2016. According to the information, Ace Company made most of its sales on credit. The company diligently collected payment for these credit sales. In 2016, Ace Company collected payments in approximately 79 days, while in 2017, it did so in approximately 72 days, indicating greater efficiency in managing its funds. Creditworthiness The current ratio is crucial as it measures the liquidity of a company by evaluating its ability to pay off short-term debt with its existing funds. Liquidity ratios are like financial fortune tellers, carefully analyzing a company's ability to pay its debts and avoid the unpleasant specter of bankruptcy. For this business, good results range between 1 and 3, indicating optimal liquidity. Results below one could be better, indicating insufficient liquidity, while results above 3 are also
Training-Accounting Tools and Practices 3 wrong, meaning overinvestment in assets. Ace Company's on-time payment ability improved significantly from 2016 (1.53) to 2017 (1.79), although it is still below the desired 3.0. In 2017, Ace Company had an accounts receivable turnover ratio of 5.06, compared to 4.68 in 2016. According to the information provided, Ace Company made most of its sales on credit. The company was thorough in collecting payment for these credit sales. In 2016, Ace Company took 79 days to receive payments, while in 2017, it took 72 days, indicating greater efficiency in managing funds. Inventory Sales Volume Inventory turnover evaluates inventory levels of sales—excess inventory results from unmet production expectations, leading to its accumulation in company warehouses. Ace Company raised the ratio from 1.53 to 1.79 between 2016 and 2017. Unfortunately, Ace's ratio is still below the ideal ratio of 2.0. The numbers indicate a better payment capacity, comparing the values of 2016 and 2017. Final Recommendation I recommend granting the loan request made by Ace Company. Despite some risks associated with the company's fluctuating inventory rate and uncertain sales performance, Ace Company has demonstrated notable progress in collecting its accounts receivable and exhibits a solid current ratio. These positive indicators assure us that Ace Company can repay the loan responsibly.
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Training-Accounting Tools and Practices 4 Reference Fernando, Jason. (2023). Current Ratio Explained with Formula and Examples. Retrieved from: https://www.investopedia.com/terms/c/currentratio.asp#:~:text=The%20current%20ratio %20is%20a,current%20debt%20and%20other%20payables . Jenkins, Abby. (Agust 8, 2020). Inventory Turnover Ratio Defined: Formula, Tips, & Examples. Retrieved from: https://www.netsuite.com/portal/resource/articles/inventory- management/inventory-turnover-ratio.shtml#:~:text=Inventory%20turnover%20is%20the %20rate,lower%20one%20to%20weak%20sales .

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