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Profitability Ratio
Another ratio in order to measure operating efficiency is the Operating Ratio. This
ratio is calculated by dividing the operating expense by net sales. In 2004, Riordan
had an operating ratio of 0.12, while in 2005 that ratio decreased to 0.11 (Apollo
Group, Inc., 2006c), which indicates that the organization is increasing the ability to
generate profits even when revenues decrease (Investopedia, 2009a).
2006a). The industry standard for the rubber and plastics industry is 11.86 or
approximately every 30 days (Yahoo Finance, 2011).
Riordan Manufacturing balance sheet also reveals an experienced steady increase
in liabilities in 2004 and 2005; however, the balance sheet also revealed variations
in specific areas suggesting their efforts to reduce liabilities and increase profits
(Apollo Group, Inc., 2006a).
Conclusion
Each piece of the financial component of Riordan Manufacturing helps construct
how the company stands financially. The income statement shows that Riordan
needs to increase the Research and Development expense in order to foster future
growth and current product improvement, which will help them realize better
revenues and improve sales by offering new and improved product lines. The
income statement also showed a manageable financial position with an acceptable
investment risk. The balance sheet determined that the company is more than
capable of paying off its obligations. Connectivity will be guaranteed with the
addition of the new accounting software and will ensure data migration between the
headquarters, the operations offices and the international branch. These individual
sections will serve as puzzle pieces which, when joined, will make up what Riordan
Manufacturing is now, a fully operational international industry player.
References
Apollo Group, Inc. (2006a). Riordan Manufacturing. Finance & accounting Balance
Sheet. Retrieved August 7, 2009. BSA/500 Business Systems I.
https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Finance/RioFan
dA002.htm
Apollo Group, Inc. (2006b). Riordan Manufacturing. Finance & accounting Capital
Budget Executive Summary FY 2005. Retrieved August 7, 2009. BSA/500 Business
Systems I.
https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Finance/CapBu
dget2005.pdf
Apollo Group, Inc. (2006c). Riordan Manufacturing. Finance & accounting Income
Statement. Retrieved August 7, 2009. BSA/500 Business Systems I.
https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Finance/RioFan
dA003.htm
Apollo Group, Inc. (2006d). Riordan Manufacturing. Finance & accounting Overview. Retrieved August 1, 2009. BSA/500 Business Systems I.
https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/RioMfgHome00
2.htm
Investopedia. (2009a). Operating ratio. Retrieved August 7, 2009, from
http://www.investopedia.com/terms/o/operatingratio.asp
Investopedia. (2009b). Research and development - R&D. Retrieved August 7, 2009,
from http://www.investopedia.com/terms/r/randd.asp
Investopedia. (2009c). Return on sales - ROS. Retrieved August 7, 2009, from
http://www.investopedia.com/terms/r/ros.asp
Yahoo Finance. (2009). Rubber & plastics overview. Retrieved August 1, 2009, from
http://biz.yahoo.com/ic/322.html