Company M vs. Company G

Keisha M. Smith

Bus 431

Due: 10/09/14

Company M vs. Company G

If I was a bank loan officer, I would prefer to lend to Company G. After viewing all of the numeric information and performing a few ration calculations, I do believe Company G has a more promising and solid future. Although, Company M “looks” more appealing on paper, my evaluation and explanations behind them will how you otherwise. I used the year 2012 alone for my calculations. Here are the reasons why I would chose Company G:

* Company G has a higher accounts receivable turnover ratio than Company M. Having a higher accounts receivable turnover ratio means Company’s method of extending credit and collecting payments is more efficient. They’re receiving their collections in a timely manner.

* A/R turnover ratio= sales/accounts receivable

* Company G: $3,841/$711= 5.4023

* Company M: $1,861/$599= 3.1068

* Company G has a higher inventory turnover ratio than Company M. Higher ratios in this category means that they are generating high sales. They are disposing the inventory they receive almost as soon as they receive it. Cash is being placed in their hands at a more constant (sometimes faster) rate.

* Inventory turnover ratio= sales/inventory

* Company G: $3,841/$873= 4.3998

* Company M: $1,861/$458= 4.0633

* Company G has a higher current ratio than that of Company M. The higher the current ratio the more capable the company is of paying its obligations. The closer the current ratio is to being under 1, the closer they are to not being able to pay off their obligations.

* Current ratio= current assets/current liabilities

* Company G : $1,603/$258= 6.2132

* Company M : $1,103/$690= 1.5986

* Company G has a lower total debt to total assets ratio. The higher this ratio gets, the higher the financial risk you are putting on yourself (the company). With Company M already falling short in the...