# Fnt1 Memo Example

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Fnt1 Memo Example
|Sound Investment, Inc.|
Memo
To: Brian Little, President/CEO of Durable Home Goods
From: , President/CEO Sound Investment, Inc.
Date: 6/25/2011
Re: Durable Home Goods
Brian,
Attached you will find my analysis of Durable Home Goods (DHG) for fiscal year 11 and my insights on some of your strengths, weaknesses, and opportunities to drive topline sales in 2012.
Current Ratio
The current ratio is an indication of a company’s ability to pay current liabilities with current assets. The formula for calculating the current ratio is current assets divided by current liabilities. DHG has a current ratio of 1.69 for year 11. When compared to the current ratio of 1.83 in year 10 and industry data quartiles of 3.1, 2.1, and 1.4 this ratio appears to be decreasing and indicates a weakness. Management should investigate ways to increase assets and reduce liabilities to improve the company’s ratio and ability to pay its liabilities.
Acid-Test Ratio
The acid-test ratio is an indication of a company’s ability to pay all of its current liabilities if they came due immediately. The formula for calculating this starts by adding cash, short term investments, and net current receivables together and driving them by current liabilities. DHG has an acid-test ratio of .39 for year 11. This compared to the acid test ratio of .61 for year 10 and the industry quartiles of 1.6, .9, and .6. This ratio is decreasing and indicates a weakness for DHG. Management again needs to investigate ways to increase assets and reduce liabilities to improve this ratio and the company’s ability to pay its liabilities.
Inventory Turnover
The inventory turnover ratio is an indication of a company’s ability to sell its inventory/goods. The formula for calculating this is the cost of goods divided by average inventory. DHG has an inventory turnover ratio of 5.15 for year 11. This compared to the inventory turnover of 6.10 for year 10 and the industry quartiles of 13, 10.2, and 8.3 is

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