Consulting Case Assignment - Essay Example

The company owned by the Moody’s operates in the commercial computer service and packaging industry. The firm has solid sales numbers, but the liquidity and profitability of the business are a major concern. In fiscal year 2003-2004 the organization had a net income of -$23,180. The net margin of the company during that period was -4.74%. Working capital measures the company’s ability to repay current liabilities using only current assets (Garrison & Noreen, 2003). The working capital of the company is $41,097.

The quick ratio shows the ability of the company to pay off its current debt. The firm’s quick ratio during 2003-2004 was 0.79. In 2003-2004 the cost of goods sold of the company increased by 41.20% The cost of gods sold of the company have increased at an alarming rate considering that the sales growth factor in fiscal year 2003-2004 was 6.40%. Higher costs of goods sold have diminished the profitability of the company.The cash position of the firm is catastrophic. Its cash balance has been declining since 2001-2002.

The cash balance of the firm this year was -$5,804. The organization is suffering from cash flow problems. The situation has escalated to a point that the firm might be forced to shutdown operations because the company will be unable to pay its short term obligations without any cash. Cash is the most important asset because it is used to pay for business transactions. Another problem that the company faces is limited production capacity. The lack of production capacity is hurting the ability of the company to take large orders.

Two human resource problems the firm has are absenteeism among the staff and underperforming managers and supervisors.The first issue that must be attended is resolving the cash flow position of the firm. The company is at the blink of bankruptcy. Typically all loans go into default after 90 days without payment. A simple solution that the firm can implement in the short term to solve the liquidity issues of the firm is factoring. Factoring is the sale of the account receivables of the company at a discount.

The balance of accounting receivables of the company is $123,501. If the firm is able to factor its receivables at a 10% discount rate the company will generate a cash influx of $111,151. The firm also has to attend the problem of rising cost of goods sold. The increase in costs is the main reason that the profitability of the company is negative. A solution to reduce cost of goods sold is sourcing materials from a Chinese manufacturer. China is the top exporter of goods in the world. The absenteeism problem of the company can be resolved by increasing the motivation of the workers.

Creating an incentive plan that pays the workers a monetary bonus for perfect attendance during a trimester is a good way to provide incentive to come to work everyday. In order for the company to produce in large volumes the firm has to make a capital investment to purchase more equipment.ReferencesGarrison, R., Noreen, E. (2003). Managerial Accounting (10th ed.). Boston: McGraw-Hill Irwin.