StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Introduction to Business - Essay Example

Comments (0) Cite this document
Summary
A better measure is acid-test ratio which takes into account the lesser liquid nature of the inventory and therefore it is preferred over current ratio, especially in the merchandizing business. (Brigham, 1985) In…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.9% of users find it useful
Introduction to Business
Read TextPreview

Extract of sample "Introduction to Business"

INTRODUCTION TO BUSINESS Introduction to Business and Section # of Ratio Analysis Current ratio is a measure of assessing liquidity of the company. A better measure is acid-test ratio which takes into account the lesser liquid nature of the inventory and therefore it is preferred over current ratio, especially in the merchandizing business. (Brigham, 1985) In the exercise given, two companies have applied for the loan and thus based on their respective current ratios and acid test-ratios, the opinion will be formed regarding the more deserving candidate to receive the loan.
Current Ratio
Calculations: Current Ratio = Current Assets/Current Liabilities (Brigham, 1985)
Current Ratio of Potz = 45000/9000
Current Ratio of Potz = 5
Current Ratio of Wannabees = 150000/85000
Current Ratio of Wannabees = 1.765
Opinion
In the light of information above, Potz current ratio is approximately three times larger than that of the Wannabees. This implies that Potz’s assets are more likely to be converted into cash beforehand to that of the Wannabees. It is therefore believed that Potz possess lesser risk to the banks and thus suits more to their requirements to pay-off the loan. (Brigham, 1985)

Calculations: Acid-test Ratio = (Current Assets – Inventories)/Current Liabilities (Brigham, 1985)
Acid-test Ratio of Potz = (45000-30000)/9000 = 15000/9000 = 5/3
Acid-test Ratio of Potz = 1.667
Acid-test Ratio of Wannabees = (150000-125000)/85000 = 25000/85000 = 5/17
Acid-test Ratio of Wannabees = 0.294
Opinion
The calculations of the acid test ratio have only confirmed our opinion. It can be observed from the calculations above that Wannabee has too much cash entrapped in inventories which takes time to liquidate. (Brigham, 1985) On the other hand Potz, whose acid-test ratio is 5.7 times larger than that of the Wannabees, is more likely to attract the bank due to its ability to liquefy itself. Therefore, it is expected that the Potz is more likely to receive the loan due to its capacity to turn its assets into cash, which can be reflected in the calculations of their acid-test ratio.
Conclusion
Despite the fact that liquidity plays an important role in the bank’s decision to grant the loan but one cannot ignore the impact of the profitability, efficiency and leverage ratios in the process. However, if the best decision is to be based on the ratios given in the exercise then Potz is likely to succeed in the process.
References
Book
Brigham, E. F. et al (1985). Introduction to Financial Management. Dryden Press.
Van Horne, J. C. et al (1998). Fundamentals of Financial Managemen (11th Edition). Prentice Hall. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Introduction to Business Essay Example | Topics and Well Written Essays - 250 words - 7”, n.d.)
Introduction to Business Essay Example | Topics and Well Written Essays - 250 words - 7. Retrieved from https://studentshare.org/management/1619682-introduction-to-business
(Introduction to Business Essay Example | Topics and Well Written Essays - 250 Words - 7)
Introduction to Business Essay Example | Topics and Well Written Essays - 250 Words - 7. https://studentshare.org/management/1619682-introduction-to-business.
“Introduction to Business Essay Example | Topics and Well Written Essays - 250 Words - 7”, n.d. https://studentshare.org/management/1619682-introduction-to-business.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Introduction to Business

Introduction to Business Law

...? Pre-incorporation Contracts and Section 51 of Companies Act 2006 School Lecturer Pre-incorporation Contracts and Section 51 of Companies Act 2006 Introduction A pre-incorporation contract (PIC) is any contract that a company may have entered into with another party before it was actually registered as a company. Usually such contracts may be vital for the formation of the company may have to be eventually accepted as they form a responsibility of the company. An example is for building a minimal set of infrastructure and other resources for the company including offices, contracts need to be organised with the third parties by the promoters. Such contracts may get accepted since they provide immense benefits for the...
10 Pages(2500 words)Essay

Introduction to business law

...?Introduction to Business Law Executive Summary This discussion stresses upon the functions which are generally performed by the event managers in making a specific event successful, as well as determining the applicable legal regulations concerning health and safety aspects of the audiences and other stakeholders. The success or failure of a particular event or a concert largely depends upon an event manager. An event manager is mainly accountable for planning an event preparing effective safety measures and ensuring appropriate coordination with the staff for successful completion of an event. Managers need to remain increasingly concerned about the occurrences of any harmful incidents during the event....
10 Pages(2500 words)Essay

Introduction to Business Enterprise

...?Case Study Jennifer Reed Intro to Business Enterprise-1030 All the people associated with a company belong to the company during the scheduled office hours. Every company has resources that comprises of human and non human resources. However irrespective of their type it is obvious that they are meant for company works and should be devoted to the completion of the same. If the resources of the company are used for personal work whether nonprofit or profit making, then out and out it will be considered as nothing less than crime. First of all if they are used for personal benefit then it is resulting in individual benefit at the cost of the company that has nothing to do with the company profit. Again even it is used for...
3 Pages(750 words)Essay

Introduction to Business

...from the hands of the marketers and producers. Internet has aided not only the consumers; it has even helped the marketers. Consumers now have access to more options than they ever had, while on the other hand, marketers have figured out new and cost effective methods of marketing their goods and services which has even increased the overall profitability of the organizations (Hawkins, 2006, p.86). References Madura, J. (1998). Introduction to business. Cincinnati, Ohio: South-Western College Pub. Gitman, L. J., & McDaniel, C. D. (2008). The future of business: The essentials. Mason, OH: Thomson South-Western. Moore, C. W., Petty, J. W., Palich, L. E., & Longenecker, J. G. (2010)....
4 Pages(1000 words)Assignment

Introduction to Business

..., 2002. December 5, 2006. http://answers.google.com/answers/threadviewid=35174 Matthews, T. 'Filling in the GAPs with Tom Carpenter.' Originally appeared in 'Washington Law & Politics' magazine, received second place honours in 2003 for best Political & Government reporting, as recognized by the Society of Professional Journalists.December 7, 2006. http://www.wahmee.com/whistle2.html Parthasarathi, K. 'Making whistle-blowing 100 per cent safe.' Financial Daily from THE HINDU group of publications. December 26, 2003. December 4, 2006. http://www.thehindubusinessline.com/2003/12/26/stories/2003122600010800.htm Quereshi, S. 'Setting up effective whistle-blowing.' Expert File. Czech Business Weekly. July 7, 2006. December...
4 Pages(1000 words)Essay

Introduction to Business Law

...Introduction to Business Law Abstract The research here will express the evident fact that the contract has to be upheld legally. It was signed by both parties and agreed upon therefore this paper will show that the law requires every party to hold up to their end of the signed agreement. This case is pretty much simple to comprehend and legally it is basically self explanatory. In many states, if both parties enter into an agreement that is fully discernible by the laws of that state then they are both expected to uphold their end of the agreement. If one does not do so then a contingency can occur which can make the sales contract fall into a null and void contract (Reality Times, 2004). The...
2 Pages(500 words)Essay

Introduction to Business Law

...1a) Effectiveness of Alternative Methods of Dispute Resolution towards Access to Justice Introduction Access to justice has always been a cherished dream for humanity in every age of human civilization. Legal systems were in place in even ancient societies such as Greek and Roman empires. The idea that no society can survive without justice can be traced in all religions, races and demographics. In the last two centuries there has been a rapid rise in human population combined with advancement in technology. As a result businesses have expanded and many new professions have evolved. This scenario has changed the dynamics of legal systems as well. More disputes have started to emerge, more cases are filed...
10 Pages(2500 words)Essay

Introduction to Business Law

...BUSINESS LAW Institute 1a) The options that need to be discussed in respect of the business being set up are of a sole trader, partnership or a company. Sole trader means a person who manages his own business and is a self-employed person. The person can have employees but the running of the business is carried out by him. The sole trader tends to receive money from his clients and pays income tax as a self-employed person. Thus the main advantage of a sole trading business would be the control by the person on how to manage the business and to get the entire income and make payments and tax accordingly. The main disadvantage of sole...
4 Pages(1000 words)Essay

Introduction to Business

...Introduction to Business Racial and gender diversity encourages organizations to give equal opportunities to all employees, without regard of theirrace or gender in the work place. Moreover, it entails creating positive attitudes to employees and enabling them gain satisfaction while working with the other colleagues in the same environment. Therefore, this makes the employees feel appreciated and secure in their environment making them more productive. However, encouraging this in the workplace, has made employees for instance, Best Buy create a conducive environment where all employees can be able to perform and work well leading to more productivity. In addition, the increase of female employees has...
2 Pages(500 words)Essay

Introduction to business

... Introduction to Business A business environment comprises of both the external and internal factors of business operations. This is the view shared by Goodman, Ladzani, Bates, Botha, and Vries in the book “Fresh Perspectives: Business Management”. According to the views given by the authors, a business environment is made up of the entire social, political and technological factors among many more other factors. The interaction between a business and its environment is usually continuous and it ensures that the business uses its resources more efficiently (Goodman, Ladzani, Bates, Botha, and Vries 15). As indicated above, the environment of a business is dynamic and most noticeably complex. Therefore, these environmental aspects... are...
2 Pages(500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Introduction to Business for FREE!

Contact Us