Accounting Summary Report
BUS599 Introduction to Quantitative Principles
Dr. Raju Singh
April 12, 2010
This report is the study of a six day season of a company Tropical Thirst’s lemonade stand and to create a journal of its transactions and produce an income statement and balance sheet into the operation of the business. The summary report will explain the nature of the business based on the number as it relates to the health of the operation. Based on the findings of the report, there are some recommendations as to how to best improve the operations of the business that is can be more successful. Tropical Thirst is a two person partnership with an initial capital ...view middle of the document...
95 , total liabilities was $39.00, total equity was $165.95 and total equity and liability equaled $204.95.
The operation and financial health of Tropical Thirst Corporation is strong. As stated in the text, “A useful measure of a company’s operating results is the ratio of its net income to net sales. This ratio is called profit margin, or return on sales” ( cited in ROSS. Custom book for Ashford: BUS599: MBA Essentials. McGraw-Hill pg.108). The ratio illustrates the profitable of the corporation was 67.24% and was an indication that the operation was a success based on the amount of sales that was generated. The company inventory turn over ratio (3.51) which is a function of total sales ($635.00) over net income ($185.90) represents the number of times the inventory is turned over into sales. This means that this operation has a short shelf life and is important to the restocking planning of the corporation. The cash ratio a function of cash over current liabilities is also strong and illustrates the liquidity of the corporation and determines how quickly the corporation can repay is debt and is also a good indicator of the solvency of the corporation. Last but not least is the return on equity (ROE) and return on asset (ROA) of the corporation. The ROE (0.76) calculates the return generated by the owners or potential investor or shareholder in the investment in a company. ROA (0.615) illustrates how profitable the company is relative to its assets. It allows indicates how efficient the owner or management are at suing the current asset to generate revenue.
Based on the numbers generated by the six day operation, there are few recommendations that can be applied to the business operation to create better efficiency. To achieve growth the corporation has to increase its revenue and equipment and hence increase its asset. Base on the current high inventory ratio and the significant amount of cash it has generated from the six day operation the corporation can increase it inventory thereby creating more sales. Also by increasing its assets the company will increase its leverage ratio which makes it attractive to potential investors.
In conclusion, the operation of Tropical Thirst Corporation over the six day period was very successful. The income statement showed revenues of $185.90 compared to expenses of $59.95 for a net income of $125.95. The balance sheet showed total asset of $204.95 with liabilities of $39.00 and equity of $165.95 for total equity of $204.95.This lemonade stand operation reveled that the six day transaction generated significant revenue and had minimal expenses and minimal liabilities, thereby generated a significant asset and retainable earning and a generous profit. Based on the success of this operation the recommendation was how best to use this profit and the significant cash flow to effectively better run and grow the business.