Financial Analysis Riordan Manufacturing - 1068 Words

TO: Riordan Manufacturing CEO SUBJECT: Financial Analysis Sir, a detailed analysis has been performed on the income statement and balance sheet of Riordan Manufacturing. The reason for this memo is to show the results of the analysis and provide an overview of the company’s financial situation. Financial Ratios Financial ratios are important for analyzing the liquidity and profitability of the company. Based on the 2010 income statement and balance sheet for Riordan Manufacturing the following ratios have been calculated. First, the liquidity ratios tell the proportion of liquid assets to as they relate to current liabilities. These ratios are important because they can show how vulnerable a company is to bankruptcy or insolvency. Next,†¦show more content†¦This is a useful measure because it shows how much each expense is impacting the company’s bottom line. It also makes it much easier compare the total amounts of assets, liabilities, and stockholders equity. The horizontal analysis compares the level of change in each account over a 1-year period. This should be used for identifying trends that are occurring with the company’s financial performance. Financial Position The Riordan Manufacturing Company is in a strong financial position. The solvency ratios show that the company is solvent and has plenty of assets to cover all short-term debt and liabilities. In addition, the company has a high percentage of stockholders equity, which has grown 8.83% from 2009 to 2010. The main weakness of the company is its slim profit margin of 4.30%. If the company was required to increase expenses in the future this could quickly cause the company to become unprofitable. References Accountingformanagement(2015)retrievedfrom(http://www.accountingformanagement.org/horiz ontal-analysis-of-financial-statements/ on July 19, 2015) University of Phoenix(2015) retrieved from (https://ecampus.phoenix.edu/secure/aapd/cist/vop/index. html#1 on July 12, 2015) Vertical Analysis for Riordan Mfg 2010 - Income Statement 2010 Vertical Analysis Sales $56,534,254 100% Cost of Goods Sold $43,970,250 77.78% Gross Margin $12,564,004 22.22% Operating Sales, Marketing