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Accounting Project: Current Ratio Essay Sample

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Accounting Project: Current Ratio Essay Sample

In this project, you will assess the financial health of the business in question, using financial analysis tools in your textbook. Please make your work neat and show all computations.  For some of your computations, you will be comparing your results with averages of businesses within your business’s industry. For assistance in obtaining industry averages, see the Reference Desk at the library. Attach the sheet(s) obtained which show industry averages to this paper. In some cases, the industry averages sheet may not have the specific ratio, but you may be able to compute the ratio using the information on the industry average sheet. If no industry average is given, but you are able to compute the industry average, please do so. What is the name of the business you are reporting on?Hershey Company|

A popular analysis technique is a trend analysis (also known as Horizontal Analysis), in which you analyze the change over time of specific financial data. This is shown on page 694 of your textbook. Refer to your income statement, prepare a trend analysis of Sales and of Net Income (or Net Loss) for all the years reported. Also, state what page in your annual report has your income statement. 2011 2010 2009Sales $6,080,788 +7% $5,671,009 +7% $5,298,668Net Income $628,962 +23% $509,799 +17% $435,994Pg. 78In your opinion, are the trends in Sales and Net Income good or bad? Please briefly explain your opinion.Both sale and net income trends are good. Both trends increase from 2009 to 2010 as well as 2010 to 2011 showing that sales and net income are increasing.|

The Current Ratio is defined on page 59. Please give a brief definition of the current ratio here.Current Ratio is the current assets divided by current liabilities. It is liquidity ratio that measures a company’s ability to pay short-term obligations.

From the balance sheet, compute the current ratio for all years presented.
2011: $2,046,558/$1,173,775=1.7 2010: $2,005,217/$1,298,845=1.5| What is the industry average for the current ratio? .6| Is your company’s current ratio weak or strong? Briefly explain your opinion. My company’s current ratio is very strong compared to the industry average. It is very strong in 2010 but it is even stronger in 2011. This shows that Hershey company is able to pay short-term obligations quickly.|

The Debt to Total Assets Ratio is defined on page 60. Please give a brief definition of the debt to total assets ratio here.Debt to Total Assets Ratio is total liabilities divided by total assets. It measures the percentage of total financing provided by creditors rather than stockholders.| From the balance sheet, compute the debt to total assets ratio for all years presented. 2011: $4,412,199/$3,539,551=1.2 2010: $4,272,732/$3,335,131=1.3| What is the industry average for this ratio? .82| Is your company’s current ratio weak or strong? Briefly explain your opinion. My company’s current ratio is weak. The percentage has decreased from 2010 to 2011 which is good because that means that liabilities have decreased compared to assets but the ratio is still well about that of the industry average. Meaning that the Hershey Company has more liabilities compare to assets than that of the average company in this industry.|

The Profit Margin Ratio is defined on page 247. Please give a brief definition of the Profit Margin ratio here.Profit Margin Ration is the net income divided by net sales. It measures the percentage of each dollar of sales that results in net income| From the income statement, compute the Profit Margin ratio for all years presented.

What is the industry average for this ratio? 5.5%| Is your company’s profit margin ratio weak or strong? Briefly explain your opinion. For all three years Hershey’s ratio was higher than that of the industry average. It remained the same between 2009 and 2010 but it did increase from 2010 to 2011. This shows that the profit for the Hershey Company is increasing.

The Inventory Turnover Ratio is defined on page 296. Please give a brief definition of the Inventory Turnover ratio here. Inventory Turnover Raito is the Cost of goods sold divided by average inventory. This indicates how quickly a company sells its goods during the year. From that you can determine how many days the product is in the inventory by taking 365 divided by the inventory turnover ratio.| From the financial statements, compute the Inventory Turnover ratio, and the Days in Inventory, for the most recent year presented. 2011 Turnover Raito 2011 Days in inventory$3,548,896/$648,953=5.5 times 365/5.5=66 days | What is the industry average for this ratio? Industry Turnover 6.9| Is your company’s inventory turnover ratio weak or strong? Briefly explain your opinion. The Inventory turnover ratio for Hershey is good. They sell their average inventory amount more often that the industry average. The Hershey Company sell’s their inventory on an average of 66 days.

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