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Business Accounting - Essay Example

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Task 1 The company selected to perform a financial analysis is the computer manufacturer Acer Group. Acer Group is composed of three brands: Acer, Gateway, and Packard Bell. The company is the 4th largest PC manufacturer in the world and third largest notebook producer (Acer-group, 2013)…
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Download file to see previous pages Acer Group generated revenues of $14.74 billion in 2012 (Acer-group, 2012). Its revenues decreased by 9.62% in comparison with the previous year. The gross profit of the company was $1.48 billion and its gross margin equaled 10.04%. Gross margin is a measure of the broad profitability of the company. Despite its solid broad profitability the company incurred in net losses for the year of $99.88 million. Its net losses for 2012 were lower than the 2011 losses of $226.59 million. The net margin of the firm was -0.68%. Net margin measures the absolute profitability of a firm. The return on assets (ROA) of Acer Group was -0.04%. ROA indicates how profitable a firm is in relation to its assets (Investopedia, 2013). The return on assets of Acer Group was bad for two reasons. First the metric result was negative. A negative ROA is an undesirable outcome. The second reason is that it was below the computer industry average ROA of 4.4% (Dun & Bradstreet, 2013). The return on equity (ROE) of the firm was -0.13%. Acer Group’s return on equity is much lower than the industry average of 9.7%. The current ratio measures the ability of a company to pay off its short term debt (Accountingexplained, 2013). This ratio is calculated dividing current assets by current liabilities. Acer Group had a current ratio of 1.19. Its current ratio is acceptable because is above the 1.0 threshold, but it is 1.01 below the industry average current ratio of 2.20. The quick ratio is another liquidity metric. It is calculated similarly than the current ratio with the exception that inventory is subtracted from current assets in the numerator of the formula. The quick ratio of Acer Group was 0.89 which is lower than the industry average of 1.50. The working capital of a business is calculated subtracting current liabilities from current assets. Acer Group had a working capital in 2012 of $954,888,000. This metric measures the ability of the company to pay off its short term debt using solely its current assets. The debt ratio measures how much a company relies on debt to finance its assets (Investorwords, 2013). It is calculated dividing total debt by total assets. Acer Group had a debt ratio in 2012 of 0.67. Considering its size the company is not too leveraged which allows the option of using additional debt in the future to expand. The debt to equity ratio of the organization was 0.49. This ratio measures the amount of assets being provided by creditors for each dollar of assets being provided by stockholders (Garrison & Noreen, 2003). The debt to equity ratio of Acer Group is lower than the industry average of 0.82. Acer Group has depended less on debt than its competition. The inventory turnover of the company was 8.91. This implies that the company sold its inventory nearly nine times during the year. The average sale period of the firm was 40.95 days, thus it took the company less than 41 days to sell its entire inventory. The asset to sales ratio of the business was 52.77% which is slightly below the industry standard of 53.40%. The sale to working capital ratio of the firm was 15.43. This ratio is good considering the fact that the industry standard is only 3.50. The times interest earned ratio measures the company’s ability to make interest payments. Acer Group had a times interest earned ratio of 1.25. Task 2 The common stocks of Acer are trading in the market under the symbol ACEIF. The stocks were priced at $3.02 as of December 25, 2013 (Yahoo, 2013). ...Download file to see next pagesRead More
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