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PDtax, Master's Degree
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Experience:  MBA/CPA, Former college instructor and tutor.
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You are contemplating investing in Very Vegetarian or possibly purchasing the company outright. Based on this information, as well as the financial statements provided in the textbook, answer the following questions in a two- to three-page paper. Your paper should use APA style. Why is it advisable to evaluate the company’s financial statements? What key information would you seek to understand about the financial statements? Why? It appears that Very Vegetarian financial statements follow a very strict form. Why must accounting reports be prepared according to specific procedures (GAAP)? Is it permissible for businesses to be allowed some flexibility or creativity in preparing financial statements? Why? Why not? What value do financial ratios offer investors in reviewing the financial performance of a firm? Why is it important to understand that financial ratios can differ from industry to industry? Include APA style reference information as in-text citations and at the end of your paper.

Submitted: 9 months ago.
Category: Business and Finance Homework
Expert:  Angela--Mod replied 9 months ago.

Hello, I'm a moderator for this topic. I've been working hard to find a professional to assist you right away, but sometimes finding the right professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. Please let me know and I will assist further. Thank you!

 

Best,

Angela
Customer: replied 9 months ago.

yes i will wait

Expert:  Angela--Mod replied 9 months ago.

Thank you for your patience while we continue to search for a professional to assist you.

Expert:  PDtax replied 9 months ago.
Hi from Just Answer. I'm PDtax, and can assist with your paper.

Can you advise your deadline? I can start it tomorrow morning if that works for you.

PDtax
Customer: replied 9 months ago.

I need it by friday, here is the additional information if needed


 


The Balance Sheet


A balance sheet is the financial statement that reports a firm’s financial condition at a specific time. As highlighted in the sample balance sheet in Figure 17.5 (for our hypothetical vegetarian restaurant Very Vegetarian introduced in Chapter 13), assets are listed in a separate column from liabilities and owners’ (or stockholders’) equity. The assets are equal to, or balanced with, the liabilities and owners’ (or stockholders’) equity. The balance sheet is that simple.



figure 17.5: SAMPLE VERY VEGETARIAN BALANCE SHEET




Current assets: Items that can be converted to cash within one year.


Fixed assets: Items such as land, buildings, and equipment that are relatively permanent.


Intangible assets: Items of value such as patents and copyrights that don’t have a physical form.


Current liabilities: Payments that are due in one year or less.


Long-term liabilities: Payments not due for one year or longer.


Owner’s equity: The value of what stockholders own in a firm (also called stockholder’s equity).





balance sheet


Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity.


 



figure 17.7: SAMPLE VERY VEGETARIAN INCOME STATEMENT




Revenue: Value of what’s received from goods sold, services rendered, and other financial sources.


Cost of goods sold: Cost of merchandise sold or cost of raw materials or parts used for producing items for resale.


Gross profit: How much the firm earned by buying or selling merchandise.


Operating expenses: Cost incurred in operating a business.


Net income after taxes: Profit or loss over a specific period after subtracting all costs and expenses, including taxes.





income statement


The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm (expenses), and the resulting net income or net loss.




net income or net loss


Revenue left over after all costs and expenses, including taxes, are paid.


 








Figure 17.8 on p. 480 shows a sample statement of cash flows, again using the example of Very Vegetarian. As you can see, the statement of cash flows answers such questions as: How much cash came into the business from current operations, such as buying and selling goods and services? Did the firm use cash to buy stocks, bonds, or other investments? Did it sell some investments that brought in cash? How much money did the firm take in from issuing stock?



figure 17.8: SAMPLE VERY VEGETARIAN STATEMENT OF CASH FLOWS




Cash receipts from sales, commissions, fees, interest, and dividends. Cash payments for salaries, inventories, operating expenses, interest, and taxes.


Includes cash flows that are generated through a company’s purchase or sale of long-term operational assets, investments in other companies, and its lending activities.


Cash inflows and outflows associated with the company’s own equity transactions or its borrowing activities.












Customer: replied 9 months ago.
Relist: Incomplete answer.
Expert:  Josie-Mod replied 9 months ago.
Hi, I'm a moderator for this topic. I've been working hard to find a professional to assist you right away, but sometimes finding the right professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 9 months ago.
Go ahead and cancel it I will have to re ask the question
Expert:  Josie-Mod replied 9 months ago.

Hi,

 

There is no need to re-ask. Your question is still open to all professionals.

 

We will continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.

Best,
Josie~Moderator

Expert:  PDtax replied 9 months ago.
Hi again, PDtax here. I see you rated my service already.

I had to be away from the site yesterday afternoon. Didn't think that was a problem, since your deadline was Friday.

If you want my help, please advise. I can do this for you this morning.

PDtax
Customer: replied 9 months ago.

If you can get it done no problem I will wait

Expert:  PDtax replied 9 months ago.
The images do not open on my end. I also can't access the web site they are linked to (no sign in).

If you can make those pages accessible, I will work on the project. Please also advise your deadline.
Customer: replied 9 months ago.


 


I was able to make those pages accessible but I was able to download and attach it

Expert:  PDtax replied 9 months ago.
I can view and print out the last pages you posted.

You want a three page paper in APA format. What is your deadline for delivery? It is now 1pm EST 10/18/13, and your earlier posts said you wanted this today. Your paper will take a few hours to write.

If you can extend the deadline a day or two, I can assist.
Customer: replied 9 months ago.
Can I get this on Saturday
Expert:  PDtax replied 9 months ago.

Paper started, will have it for you later today. I see you also asked this question in another category, but assume this is the one you want answered. PDtax

Expert:  PDtax replied 9 months ago.
https://dl.dropboxusercontent.com/u/100908300/Very%20Vegetarian%20Investment%20Review.docx is the link to my essay.

Thanks again from Just Answer. Please rate my work after review. Any of the three highest ratings will tell site management you accept my work, and can close out your question.

You can ask follow up questions as well. I will be available today until 6 pm for follow up is you need anything else.

PDtax
Customer: replied 9 months ago.

can you resend the link

Customer: replied 9 months ago.

the link you send me is not working

Expert:  PDtax replied 9 months ago.
Very Vegetarian Investment Review
Name
University



















VERY VEGETARIAN 2
Abstract
This paper explores the potential investment or purchase of Very Vegetarian. Financial statements are presented for review of the Company’s finances. Certain financial issues will be identified, and an investment conclusion drawn, based on that review. Ratio analysis will be used to test the company’s financial viability and provide some basis to forecast its future and value as an investment.











VERY VEGETARIAN 3
Research and investigation of a business is crucial to investment success. While a business may become known from its prominence in the marketplace, how it has does what it has done is reported to stakeholders in its financial statements. Financial statements are reports of a company’s financial history. Financial statement review, both reading and applied, is critical to investigating a company’s past and determining much of its future.
Since an investment is being considered, one should try to determine how the company makes money, does it, what commitments does it have, and is it established for the long haul (is there financial risk to consider). What are the markups for its products, and how do they compare with traditional and specialty supermarkets? We can look at the business financials to examine key operating ratios, and compare them to accepted standards to highlight areas of concern or further investigation.
Financial statements are often the only source of financial information readily available to investors and stakeholders. The information contained in them and their presentation should be consistent with industry rules for consistency and appropriateness. Generally Accepted Accounting Principles, or GAAP, are the rules that companies must follow. There is some latitude in reporting, choices that can be made, but the content of the statements must be disclosed so that an informed reader can interpret what is being presented. Creativity is allowed as long as the rules and their intent is followed. The goal of adherence with GAAP is that a reader must not be misled about the entity or the financial statements taken as a whole.
Once we establish that the financial information can be relied upon by a reader/stakeholder, critical thinking can be applied to that information to test and compare the entity with known standards of performance, generally with competitors in the same field or industry. These measures comprise the entity’s financial health. Differences will indicate superior or inferior operating results, and generate areas for additional questioning.
Liquidity, or the access to cash, is the first measure of the company’s health. If the company has enough cash to meet its short term debt needs, that is considered a sign of good liquidity. A current ratio of 2:1 (current assets to current liabilities) is a good indicator. Very Vegetarian has $600,000 of current assets, $288,000 of current liabilities, for a ratio of 2.08:1. While the ratio is acceptable, I am not a fan of the makeup of the current assets. So much is accounts and notes receivable that I am not impressed. However, a cash business like a supermarket generates daily from sales, which may offset the makeup concern.
Profitability is an important measure of financial success. Markup on cost of goods sold is strong, with the markup being (290,000/410,000) over 70%, which is very strong when compared to traditional supermarkets and their industry standard of 15%. In Entrepreneur Magazine, retrieved from http://www.entrepreneur.com/answer/221767, October 19, 2013.
Debt ratios are also important in their measure of how heavy the debt burden is. Very Vegetarian has a debt ratio (total debt to total assets) of (613,000/826,000) 74%, which is very high. So much of the company has been financed by debt that this should be considered a risky investment or purchase.
Operating performance ratios, such as sales per employee, are not usable in this analysis as employee numbers are not available.
Cash flow ratios indicate where the firm’s cash flow is coming from, and any indication that does not mirror a strong correlation to sales is a notable problem. The operating cash flow to sales ratio for Very Vegetarian is ($52,000/700,000) 7.4%, which is very low. This indicator alone is enough to warrant passing on this investment.
Lastly, investment valuation ratios give an indication of a company’s worth and a measure of its enterprise value. The company compared to the book value of the equity in the company shows a return on book value of ($49,000/$213,000) 23%, which appears to reward the high leverage entered into. It cannot be looked at alone, and must be considered as part of an overall review.
Different businesses have different revenue cycles, fixed asset requirements, and as such ratios in one industry may not be comparable to all others. Supermarkets, for example, likely have little to no credit sales, and generate cash each sales day. Manufacturers of products likely have to deliver goods and wait for payment, so cash flow and inventory turn ratios will be very different for these two business types.
To summarize, the business being reviewed is a risky, high-debt entity with poor cash generation. The non-cash receivables are troubling, as is the amount of accrued salaries and income tax expense that could not be paid during the year. This is not a good candidate for investment or purchase.

Expert again...I went beyond the questions to actually reflect what the ratios actually could tell a reader. I thought it added validity to the general questions about ratios. Thanks for asking at Just Answer. When this question is accepted, I will ask the site to close access so that others can't use the essay you paid for.
PDtax, Master's Degree
Satisfied Customers: 1891
Experience: MBA/CPA, Former college instructor and tutor.
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