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Investment Financial Analysis

Student name

Course name – number

Instructor

Date submitted
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Working Capital

The working capital for the company is $195,000. The main assertion that can be made in

this context is that the firm has a high working capital. The implication is that the company’s

assets are ahead of the firm’s short-term debts (current liabilities). The company can use its

current assets to pay off its short-term debt.

Quick Ratio and Current Ratios

Based on the calculations, the quick ratio is 0.93 and the current ratio is 2.18. The values

of the quick ratio match the preference of a quick ratio of at least 0.80, in addition to the current

ratio being at 2.18, which meets the preference of at least 2.00. The quick ratio of less than 1.00

implies that the company does not have adequate quick assets that are capable of paying for its

current liabilities. The firm cannot use the quick assets to offset its liabilities that are due within a

period of one year or less.

A current ratio of more than 1.00 shows that the firm’s debts due in a year or less are

lower than its assets. The implication is that the firm is more than 2 times (2.18) more than

current assets than liabilities to cover its liabilities. The integration of the current ratio and quick

ratio for the firm shows that it is able to cover for its short-term liabilities as they become due.

Change from Cash to Credit Sales

If the firm changes from cash to credit sales, this will have no effect on the current and

quick ratios. In the event of the sales policy of the firm changing from cash to credit, the

management account impacted will include the cash and receivables. Both cash and receivables

are elements of current and quick ratio. There will be a decrease in the cash account and a

respective increase in the receivables. The net effect will be zero for the two accounts, which

shows that the quick ratio and current ratio will not be affected; no decrease or increase.
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Statement of Financial Position Presentation before Shipments are made

The firm will have a higher amount of sales, which will enhance the volume of cash. The

firm will have an increase in quick and current ratio, thereby attracting more investors. The cash

generated will be used to pay off the current liabilities. Since current liabilities the denominator

in quick and current ratio, a decline in current liabilities raises the quick and current ratio.

Advantage of a Publicly-Listed Company

A publicly-listed company can sell more shares. The firm’s management is not

answerable to the shareholders, since the liability is limited to the firm’s share value. The

company has more resources that can be accessed to help in its operations and product

development. It is less risky to venture in a publicly-listed firm. In the event of the firm operating

as a private company, there will be a need to invest privately if there is economic crisis.
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Appendix

Working capital

Working capital = Current assets – current liabilities

Current assets = cash + inventory + prepaid expenses = 154,000+185,000+21,000 = $360,000

Working capital = 360,000 – 165,000 = $195,000

Quick ratio

Quick ratio = Quick assets /current liabilities

Quick assets = Total current assets – inventory – prepaid expenses

Quick assets = $154,000

Quick ratio = $154,000 / $165,000

= 0.93

Current ratio

Current ratio = Current assets / current liabilities

= 360,000 / 165,000

= 2.18