Assignment
Business owners monitor their cash flow for a number of reasons: to make sure their bills are paid on time, to ensure cash is received from customers, and to determine if they have enough resources to expand, purchase new equipment, or even invest in other securities or companies. To evaluate their company's performance, they use the cash flow statement, as well as the horizontal, vertical, and ratio analysis. These tools are beneficial in monitoring revenue and expenses, as well as measuring performance against competitors.
Scenario
Imagine that you own a business. Your business could be anything from a coffee shop to a home-based healthcare facility, to an accounting firm. As the business owner, you are about to analyze the performance of your company and will need the information from your cash flow statement, horizontal analysis and vertical analysis.
Questions
Discuss the following information in a 2 to 3 pages report:
a. Briefly describe your business.
b. What information will you need to prepare the cash flow statement?
c. Which method will you use to prepare the cash flow statement? Why?
d. How can a horizontal analysis help you evaluate the performance of your company? Vertical analysis? Which analysis do you think is more important or relevant as a business owner?
Now that you have analyzed your company's performance, you want to expand your business and decide to apply for a small business loan. You have all the financial statements prepared and provide them to the loan officer. The loan officer reviews your paperwork and requests the calculation of three ratios: working capital, acid test ratio, and current ratio.
a. How do you calculate working capital, acid-test ratio, and current ratio?
b. Why do you think banks or creditors look at these three particular ratios?
c. Do you feel these ratios are important to monitor or are other ratios are just as important?
Format your assignment according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the assignment, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.