Accounting Balance Sheet Analysis

Topics: Balance sheet, Inventory, Generally Accepted Accounting Principles Pages: 2 (468 words) Published: December 1, 2008
Riordan Manufacturing, Inc. Balance Sheet Analysis Careful analysis was done of Riordan Manufacturing’s balance sheet. The balance sheet provides details into the company’s financial position. It is made up of the company’s assets, liabilities, and owners’ equity. Assets are the liquid items the company uses to help the business function. Assets also include current assets and non-current assets. The company’s financial obligations are rooted in the liabilities. The two categories of liabilities includes: current liabilities and long-term liabilities. The owners’ equity consists of the original investment into the company and the retained earnings. A better analysis into the Riordan Manufacturing was done by using financial ratios. The first ratio that was used was debt-to-equity ratio. The debt-to-equity ratio provides a greater understanding of Riordan’s financial position, in addition to its operational capability. It outlines just how aggressive the company’s finances its debt. The ratio is computed by dividing total liabilities by shareholders equity . In Riordan’s case the debt/equity is .56. This generally means that Riordan is financing a greater portion of its assets with equity and not debt. This puts Riordan in a good position with its investors and moves them away from any possible bankruptcies, outside financing, and interest expense. Another analysis was done to determine the outlook of Riordan by studying the working capital. In assessing the working capital, one can find out the strength of a company. The ratio for working capital is: working capital= current assets – current liabilities. Riordan’s net working capital shows promise for the company’s future. It has a positive working capital for 2004 . This positive working capital means that Riordan is able to pay off short-term liabilities with current assets. Riordan’s cash, accounts receivables and inventory are all in good health as a result of the positive working capital. The positive...
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