Financial Scope

1. 50 Marks. In 1,500 words or more please tell me how you think Mohawk Corporation is financially performing.

Firstly I will admit that all this financial mumbo jumbo confuses the heck out of me. Being in the

public sector we have ‘people’ that look after this company burden. So please bear with me in trying to understand and decipher the good and the bad of a company financial balance sheet and income statement.

Overall, in my unfamiliar opinion, the company is doing well. If you add up the retained earnings (using 2008 as an example), current and fixed assets, there would be more than enough to cover all outstanding liabilities and leave a good amount of money for owners’ equity. With this being said, closer examination shows some issues that would need to be addressed.

The first thing that I notice is the amount of fixed assets compared to the current assets. (page 24). Of course having a lot of tangible or intangible fixed assets boosts the company’s worth, but being that this amount of money is confined to the fixed assets it may be difficult to turn into cash if the company would to run into any type of financial difficulty. A fixed asset would take longer than a year to turn into cash, and if the need was dire, the result of selling/cashing in the fixed assets could actually result in a lower value. The fixed assets would be considered an illiquid asset (page 26).

Looking at the inventory levels it is good to see that there wasn’t that much of an increase of product on hand. Only an increase by slightly over 1% is added to the current assets. Inventory is noticed as the least liquid of the current assets (page 26).

However jumping from the assets over to the liabilities I would be concerned about the amount of long term debts and the increase of that by an additional $20,000 in one year. The amount of money owing long term seems quite excessive. If you compare your overall total assets only increasing by 2% to your long term debt increasing by 11%. The...