Maria Hernandez Case

Topics: Expense, Depreciation, Financial ratio Pages: 4 (1126 words) Published: November 30, 2012
The Story:

Maria Hernandez & Associates is a company that started its business with a cash deposit. On June 20,2004 Maria Hernandez transferred all her savings of $30,000 into a new Bank account under her company’s name, two days later she transferred another $20,000 which she had borrowed from her father on a 6% p.a. interest rate. Thus, with an amount of $50,000 in its bank account Maria Hernandez and Associates was ready to start its life in the Webpage designing sector. After the Bank account transactions, Maria Hernandez quickly took care of the initial expenses that included pre-paid rent for the new office, giving a security deposit for the same, buying used computers and software from her previous employers and also ordering and acquiring office stationary. On July 2,2004 Maria Hernandez & Associates opened its doors for business.

The substance of our report covers the first two months of the company’s operations. At the start of the operations i.e. July 2nd, 2004 the amount in the company bank account was $12,000; however on August 31st, 2004 (roughly two months of operations) the amount had declined to $6,600. We are therefore left with two key questions to answer.

1. How would we report on the operations of Maria Hernandez & Associates through August 31, 2004? Had the company made a profit as Maria Hernandez believed? If so, how can we explain the decline of cash in the bank?

2. What can we say about the status of the business on August 31, 2004?

To answer these questions we analyzed the company’s income statement and balance sheet for the months of July-August, 2004 and have come up with the following analysis and suggestions:

Financial Ratios:

Through the analysis of the Income Statement and Balance Sheet, we were able to extrapolate the following Ratios, which gave us an insight into the workings of Maria Hernandez & Associates

|Financial Ratio |Figures |...
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