Wgu Fnt1 Task 1 Part D

|To: |CEO of Company G |

|From: |Your Name |

|Date: |05-09-12 |

|Re: |Company G Analysis |

The following is an analysis which I have prepared of Company G. This analysis includes an explanation of each ratio calculated and what it means for Company G as well as comparisons of these ratios to those of the home center industry averages.

CURRENT RATIO:

A current ratio determines whether a company has enough assets to cover its current liabilities. Current ratio is calculated by dividing current assets by current liabilities. In Year 12, Company G has a current ratio of 1.77 which is slightly lower than the current ratio of year 11 which was 1.86. In general, current ratios above 1.5 are considered strong. However, when compared to the industry average, this places Company G just slightly above the bottom 25% of the industry which indicates that there could be room for improvement. This current ratio is a weakness and should be investigated and improved.

ACID-TEST RATIO:

The acid-test ratio tells whether a company could pay all of its current debts if they were to become due all at once. The acid-test ratio is determined by adding together cash, short term investments and net accounts receivable and then dividing this sum by current liabilities. Company G’s acid-test ratio for Year 12 is .43, which is lower than Year 11’s ratio of .64. Both of these put Company G in the bottom 25% of the home center industry average and below the norm for most industries of .90 to 1.0. This is therefore a weakness and should be...