To: CEO-Kudler Foods.
From: Team B
Date: August 22, 2011
This memo is in regard to a recent horizontal and vertical analysis performed on Kudler Foods. The analysis completed was to inform the company of potential interests from different users. The users will be able to use ratios calculated to reveal performance and the current position of the company. The vertical and horizontal analysis is attached along with calculations of liquidity, profitability, and solvency ratios.
The liquidity, profitability, and solvency ratios allow users to identify the financial health of Kudler Foods. The liquidity ratios include the current ratio, acid-test ratio, and inventory turnover. Kudler Fine Foods has no accounts receivables so there was no need for a receivables turnover calculation. The liquidity ratios show that the amount of liquid assets is high in comparison to the industry average. This means that Kudler Foods has assets that can be converted to cash very quickly. Creditors would look at these calculations and be appeased by the ability Kudler Foods has to pay their short-term liabilities. The profitability ratios calculations included asset turnover, profit margin, return on assets, and return on common stock-holder equity. The ratios calculated show by use of profitability ratios the company financial position is worrisome. This is said because ROA is low. When ROA is low then the company is using less money on more investment. The profit margin is low as well calculated at only .6% showing that Kudler Foods has a low profit at the reporting time. The solvency ratio was calculated as well. The debt to total assets ratio was .28%, which shows the company is healthy. The times interest earned were 9.8%, which backs up claims of financial health. The solvency ratio shows Kudler Foods can pay back long-term obligations.
Each ratio has different users interest in mind. The profitability ratio will be a tool for management to determine performance. Lower ratios will cause management to examine current market and finds a solution to improve. Probability ratios will also determine the company ability to survive over a period of ups and downs. Liquidity ratios will be used by creditors to ensure a company can turn short-term assets to cash to cover debt. The liquidity of Kudler Foods will be important for the creditor, such as a bank, to ensure safety of a loan. The solvency ratio will be used by investors to determine the ability to meet long-term obligations. The investor can use data to ensure debt obligations are met and to identify if the company is financially healthy. The solvency ratio will also be able to determine the growth potential on shares.
The collected data reveals the performance and position of the company. With horizontal and vertical analysis and ratio calculations the performance and position of the company is determined. The performance is satisfactory, but shareholders may want to come up with a plan to improve calculations to ensure security of any obstetrical. The current calculations might be due to an economic decline. The current position of the company is financially healthy, but lack of profitability. Kudler Foods is paying debts as contracted, but limits profitability, which puts a hardship in potential growth in the near future. Thank You,
Kudler Fine Foods Vertical Analysis
Balance Sheet as of 12/31/2003
Current Assets| | |
Cash| $1,430,000 (1,430,000/2,675,250)| 53.5%|
Accounts Receivable| $86,000 (86,000/2,675,250)| 3.2%| Merchandise Inventory| $429,000 (429,000/2,675,250)| 16%| Prepaid Expenses| $26,000 (26,000/2,675,250)| .009%| Notes Receivable| $0 (0/2,675,250)| 0%|
Total Current Assets| 1,971,000 (1,971,000/2,675,250)| 73.7%|
Fixed Assets| | |
Vehicles| $35,250 (35,250/2,675,250)| 1%|
Furniture and Fixtures...