ACC 308 Milestone 1 Management analysis brief PDF

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Alyssa Stein 3/22/2021 Milestone 1 part 2 ACC 308 Management Analysis Brief Peyton Approved is looking to open a second location during the fiscal year and to do that the company needs to look at their financial health using their ratio analyses. Using the already calculated ratios from 2016-2017 these will be used to compare past results and potential future results if the company keeps following the same trend, as well as comparing it to their competitors’ companies and they are growing or falling in their industry. Ratio Analysis

2017

2016

Current Ratio (working capital)

5.79

5.19

Quick Ratio

4.89

4.60

A/R Turnover

5.92

5.54

Inventory Turnover

7.67

8.81

Gross Margin

68%

66%

Return on Sales

54%

53%

Return on Equity

125%

161%

Return on Assets

101%

109%

When we first examine the financial health of the company, we see that the gross margin is up by 2% from 2016. If the gross margin continues to rise this will allow Peyton approved to have a greater profit intake. Even though the cost of goods is up by 2% they are still making more. This is supported by the company’s Return on Sales percentage. We also see an increase here indicating that the company is efficiently generating profit from its revenues.

We should also be encouraged by the slight increase of the A/R turnover ratio. It might not be a huge increase, but it is significant even if its just a few days difference. In 2016 the numbers indicated about 65 days and now in 2017 the numbers indicate approximately 61 days give or take. The stronger the collections rates become the more increase to the company’s cash flow they will receive. Now if this turnover were to suffer and drop, this would impact the ability to be able to repay their debts. But according to the trend that is happening these numbers are encouraging that they stay on the right path. An area of concern is the inventory ratio, and they had a significant decrease in 2017 compared to 2016 from 8.81 to 7.67 which is considered a huge decrease. If you were looking at the lower number a possible thought could be that some of the company’s products are in low demand and not as popular even though their revenue numbers do not show this being the issue, so the company will need to see if they are ordering to much of one item versus another using the production and sales reports. Doing so will be critical if they are able to successfully open a second store. This being said, Peyton Approved should consider using some of their working capital to reduce their long-term debt or obligations. By doing this they would be able to effectively increase their value of money. “The time value of money is made up of three specifications: compensation for delayed consumption, compensation for expected inflation and compensation for risk” (Wahlen, Jones & Pagach, 2017). In their case some of their long-term responsibilities show that they are paying more in the above-mentioned specifications to the lender, all in the shape of interest. Interest rates increase the potential value of money for the future because the people lending the money get an increase in profits as a result.

With these results to me the company seems to be in good standing and in a good spot to be able to open a new store next fiscal year and have it be successful. The rise in profits is a good thing even though there might be inventory problems as well as the cost of goods slightly going up but if they are able to fix the inventory turnover problem, they will be on track to keep increasing their profits. They could also potentially try to look into cheaper (still same quality or high quality) materials from off brand shops or third-party retailers which could lower the cost of their goods and bring their profits up even more so than before. I believe Peyton Approved is ready to open a second location.

Works Cited: Wahlen, J.M., Jones, J.P., & Pagach, D.P. (2017). Intermediate Accounting: Reporting and Analysis (2nd ed.). Boston, MA: Cengage Learning....