You are working as a project manager of a construction company. Due to the economic impact, your company is currently limited in term of resources, including financial resources. Due to this, the company can only run one project at one time. Your company was offered two construction works by two different developers, which are Company A and Company B. Due to the limited resources of the company, and to ensure that the project can run smoothly without any liquidity problem, it is vital that the client is stable and able to pay on time. As the project manager, your company have instructed you to study the current financial situation of Company A and Company B. Upon research, you have obtained the balance sheet of the companies as follows. Table 1: Balance Sheet for Company A and Company B Assets A Fixed Assets Other Non-Current Assets 250,000 80,000 120,000 80,000 120,000 650,000 280,000 110,000 140,000 100,000 100,000 730,000 Account Receivables Inventory Cash ТОTAL Liabilities Capital Long Term Debt Account Payables 250,000 120,000 160,000 120,000 650,000 280,000 140,000 180,000 130,000 730,000 Other Current Liabilities ТОTAL Upon further investigation, you have found that the amount of account payables for Companies A and X at the start of the year is RM20,000 and RM30,000, respectively. Apart from that, the amount of credit purchase for Companies A and B is RM250,000 and RM280,000, respectively. Based on all this information, recommend on which company that give lower risk to your company. The recommendation must be justified by the following analysis:
You are working as a project manager of a construction company. Due to the economic impact, your company is currently limited in term of resources, including financial resources. Due to this, the company can only run one project at one time. Your company was offered two construction works by two different developers, which are Company A and Company B. Due to the limited resources of the company, and to ensure that the project can run smoothly without any liquidity problem, it is vital that the client is stable and able to pay on time. As the project manager, your company have instructed you to study the current financial situation of Company A and Company B. Upon research, you have obtained the balance sheet of the companies as follows. Table 1: Balance Sheet for Company A and Company B Assets A Fixed Assets Other Non-Current Assets 250,000 80,000 120,000 80,000 120,000 650,000 280,000 110,000 140,000 100,000 100,000 730,000 Account Receivables Inventory Cash ТОTAL Liabilities Capital Long Term Debt Account Payables 250,000 120,000 160,000 120,000 650,000 280,000 140,000 180,000 130,000 730,000 Other Current Liabilities ТОTAL Upon further investigation, you have found that the amount of account payables for Companies A and X at the start of the year is RM20,000 and RM30,000, respectively. Apart from that, the amount of credit purchase for Companies A and B is RM250,000 and RM280,000, respectively. Based on all this information, recommend on which company that give lower risk to your company. The recommendation must be justified by the following analysis:
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 67C
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a) Liquidity analysis.
b) Solvency analysis.
c) Any other financial analysis that you think can help in making your
decision.
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