Abc Company

Abstract

"You can't manage what you don't measure." This old adage is a lesson for all businesses large and small. In evaluating a business like the one in this paper, ABC Company, it is best to use financial ratios which allows you to compare companies in different industries and sizes by using a standardized method to analyze performance. Financial ratios reveal how good a company is at making a profit, funding the business, growing through sales rather than debt and a wide range of other factors. These ratios will be used to determine ABC Company's performance based on its liquidity, financial leverage, activity and profitability as compared to the company's past performance and their industry's averages. Additionally, this paper will illustrate how to evaluate a future investments for the company, in this case new equipment, using the net present value method to determine the return on the capital invested.

The old adage, "you can't manage what you don't measure" is a lesson for all businesses large and small. In evaluating a business like the one in this paper, ABC Company, it is best to use financial ratios which allows you to compare companies in different industries and sizes by using a standardized method to analyze performance. Financial ratios reveal how good a company is at making a profit, funding the business, growing through sales rather than debt and a wide range of other factors. Using financial ratios, this paper will explore ABC Company's liquidity, financial leverage, activity and profitability to determine their overall performance.

A company's liquidity is an essential factor to determine the health of the business so it would make sense to start here when evaluating the financial health of ABC Company. Their current ratio for 2010 is 1.75. As a rule of thumb, to show adequate liquidity a company's current ratio should be 2.0 and combined with an acid-test ratio of 1.0 (Marshall, McManus & Viele, 2012). ABC Company's current ratio...