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Liquidity analysis. b) Solvency analysis. c) Any other financial analysis that you think can help in making your decision.

Liquidity analysis. b) Solvency analysis. c) Any other financial analysis that you think can help in making your decision.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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) Liquidity analysis. b) Solvency analysis. c) Any other financial analysis that you think can help in making your decision.
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 Account Receivables Inventory Cash ТОTAL 250,000 80,000 120,000 80,000 120,000 650,000 280,000 110,000 140,000 100,000 100,000 730,000 Liabilities Сapital Long Term Debt Account Payables Other Current Liabilities ТОTAL 250,000 120,000 160,000 120,000 650,000 280,000 140,000 180,000 130,000 730,000 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:
Transcribed Image Text: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 Account Receivables Inventory Cash ТОTAL 250,000 80,000 120,000 80,000 120,000 650,000 280,000 110,000 140,000 100,000 100,000 730,000 Liabilities Сapital Long Term Debt Account Payables Other Current Liabilities ТОTAL 250,000 120,000 160,000 120,000 650,000 280,000 140,000 180,000 130,000 730,000 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:
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