Apex Corporation Case Coursework Example | Topics and Well Written Essays - 1500 words

Apex Corporation Case - Coursework Example Conversely, the owners may just be satisfied with a business size that suits their managerial capabilities. Whatever the size of the business, it is the financial health that matters the most to all stakeholders (Meigs & Meigs, 10). In the given assignment, I have to assume that I am an attorney and that a client has approached me to consider whether a managerial position at Apex Corporation would be good to take up. He is already impressed with the salary and benefits they are offering but has no knowledge of accounting or finance. So I am going to have to advise him after looking at Apex’s financial statements for 2001, as the assignment criteria limits our evaluation to this year only. However we might make comparisons between the years 2000 and 2001 Analysis of Financial Statements The financial statements of a corporate enterprise, namely the income statement and the balance sheet are two of the most important summaries of the business activities that have occurred over t he last financial year. We are told that the Apex Corporation is a local manufacturing firm. The third statement that has also found to be of use to stakeholders is the Statement of Cash Flow, which shows how the firm used the cash generated in financing, investment and production activities. Negative or troubling cash flow situations are often the first sign of distress in a business, occurring long before telltale signs emerge on its income statement and balance sheet. The most common ratios that can be calculated for a corporate business entity using ratio analysis are the Current Ratio, the Debt-Equity Ratio, the Receivables Turnover, the Gross Profit percentage, the Net Profit percentage and the Inventory Turnover. This will give an analyst a good picture of the financial strength and viability of the business. Another approach would be a year to year comparison of results, using the common size income statement and balance sheets for 2000 and 2001. Calculation of Financial Rat ios Proceeding with our calculations, we first have the Current Ratio, which is calculated as: Total Current Assets / Total Current Liabilities. For Apex Corporation, this is: For Year 2000: $3,415,807/ $1,546,107= 2.21: 1. For Year 2001: $4,257,700/ $1,616,700= 3:1. So we find that Current Ratio has improved from 2.21:1 in 2000 to 3:1 in 2001. This indicates that there are now more current assets to cover current liabilities. The working capital which is defined as Total Current Assets – Total Current Liabilities, has improved from $1,869,700 in 2000 to $2,614,000 in 2001. This speaks well of the company’s short term liquidity and solvency. However, we would have to compare it to Industry Averages for the manufacturing sector to be more accurate in our perceptions (Meigs & Meigs, 943). Moving on to the Debt-Equity Ratios, the ratio of Total Debt to Total Assets can be calculated by Total Liabilities / Total Assets. For Year 2000 it is $2,296,107/ $5,615,807 or 0.41: 1 and for Year 2001 it works out to $2,466,700/$5,697,700 or 0.43:1. This means that debt was 41 cents to the dollar for each $1 of assets owned by Apex Corporation in 2000, and this increased slightly to 43 cents to the dollar in 2001. In other words we can say that each $1 of assets of Apex Corporation was financed 41percent by debt in 2000 and 59 percent by equity; this changed to 43 percent debt and 57 percent equity in 2001. Coming now to the Gross Profit Margin, this is given by: Gross Profit/ Sales x 100. For