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Week 5’s Ratio Memo

April 30, 2012

Memorandum

Subject:Liquidity, profitability, and solvency ratios

Our team was asked to evaluate the liquidity, profitability, and solvency ratios of Berry’s Bug Blaster. Please note the attachments show each ratio in detail if you so desire more information pertaining to each.

Liquidity Ratios show the current ratio of 5.99:1 in 2008 in comparison to 3.57:1 in 2007 shows that the amount of current assets the company has to meet their liabilities is increasing. The same is shown by the acid test ratio. The receivables turnover of 4 times in 2008 is down from 7.71 times in 2007. This shows that the company is not collecting on their receivables as often. Berry’s bug blasters does not sell merchandise therefore there is no inventory turnover.

The people who are interested in the liquidity ratios would be investors and creditors in the current ratios, acid-test ratios, receivable turnover, and the inventory turnover to determine the stability of the company and the ablity to meet its liabilities.

The data shows that the company is making plenty of revenue to meet their liabilities and has been for several years. The receivables turnover ratio shows that the company has not been able to collect on receivables as often in 2008 as they did in 2007.

Profitability ratio shows the income or operating success of a company. To obtain debt and equity financing it is necessary to find out what the income of the company is. The income of the company affects the liquidity position and the company’s ability to grow.

The people who would be interested in our findings for the profitability ratio would be creditors and investors.

Due to the fact that Berry’s Bug Blasters is a service company and not in the business of sales, it does not have a line item for net sales. Therefore, the measures of profit margin and asset turnover do not apply to Berry’s Bug Blasters. On...
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