I am writing to inform about the financial situation of the company. The data provided is all from the financial information of the company to determine the current financial position of Crater Canoe Company including trial balance (unadjusted and adjusted), income statement, statement of equity, and the balance sheet. Data from the financial statements would provide significant information on how the company is running (in terms of financial position) and its future strategic changes. For instance, the balance sheet will provide data that would assist the management plan in the activities of the business and its transaction in a sustainable cash-flow. There are several attributes and financial statements to consider before CC makes financial decisions for a sustainable future.
The Current Situations of the CCC
Crater Canoe Company is a service-based company that rents canoes for use on local lakes and rivers and facing comprehensive financial situations. Therefore, considering the financial considerations/activities conducted in the company there need proper financial statement preparations. The following is the financial results statements preparations as per financial CCC life-cycle
Total Debits (and Credits) on Unadjusted Trial Balance = $ 157,125
Total Debits (and Credits) on Adjusted Trial Balance = $ 157,175
Net Income on Income Statement = $ 8,225
Ending Capital (on Statement of Equity) = $ 141,875
Total Assets on Balance Sheet = $ 158,420
(data attached in excel file)
Industry Comparison- Assessing the Health of Crater Canoe Company
Companies have their own ways of managing and controlling their net income; this is when the company wishes to provide benefits to the investors. Further, controlling is the main determinant in financial activities to optimize the revenue while adhering to the company's mission. In CCC new sole proprietorship, there can be noted problems that need to be adjusted in financial activities to change the current trends in the income statement, statement of equity, and the balance sheet. The management needs to consider calculation & ratios to compare The three main ratios and concepts in the financial life-cycle that determine the decision that needs to be followed before making a decision and they include the following:
- Working capital
- Current ratio
- Profit Margin
- Debt to Equity ratio
The nature of the industry (outdoors activity & tourism) in the area where CCC provides its activities has its average for the ratios as listed below:
- Current Ratio of 2.5
- Profit Margin of 38%
- Debt to Equity 10%
Comparing CCC with the Industry's Average Ratios
1. Current ratio;- this is calculated to determine the ability of the company to pay short-termed obligations and those exceeding one year.
Current ratio= current assets/current liabilities
Current ratio (CCC) = 21400/9345Current ratio (CCC) = 2.3
2. Profit Margin;- This is used to determine the magnitude the business organization makes money (seeking to determine sales percentage converted to profit)
Profit margin= (operating income/revenue)*100%
Profit margin= (8,225/12600)*100%
Profit margin (CCC) = 0.652
3. Debt to equity ratio;- Is the magnitude at which the business is funding in a wholly-financed activity.
debt-to-equity ratio = total liabilities/ owners equity
debt-to-equity ratio= 16545/141,875debt-to-equity ratio= 16545/141,875
Meaning of the CCC to the Industry
A higher current ratio (greater than 1), such as that of CCC indicates that the company is capable of paying its short term debts. In the industry in question CC has a current ratio of 2.3 which means it is almost the average ratio of the industry. Therefore, many companies are paying their short-term obligations/activities at a higher rate. Fortunately, CCC is not badly off since it is capable of reaching a maximum of 2.3 which shows they can pay their short term obligations.
Further, the profit margin of the company is 65% which means it is greater than that of the industry (38%). meaning that the company has a higher capability of making money.
Finally, the debt-to-equity ratio of the company is 11% which is slightly higher than the average industry ratio. Therefore, the company is capable of funding its activity with the industry.
Significance a Recommendations
Many businesses have failed due to financial mismanagement in comprehensive scenarios; service-based organizations in outdoor activities that have failed due to mismanagement. Some of the financial problems can be noted due to a lack of proper book records, funding, and provision of financial business ides. According to Affandi, Sunarko, and Yunanto (2019), many organizations prefer a business that would provide dividends regularly than that provides dividends in the future. For new businesses such as CCC, it would be hard to attract investors in the business since there are no signs of greater gains in the future.
According to the company's current ratio, the company is capable of attracting several investors to increases the capital/funding in the business. Even though the ratio is slightly lower the average industry ratio company's current ratio is more than 1 which shows the ability to fund short-term activities and utilities. Moreover, CCC is also privileged to have a debt-to-equity ratio of 11% showing that they can pay their debts, avoid bad-debts, and attract investors. However, it seems that their I higher profit-margin ration in the industry which could suggest a higher competition.
First, the company needs to consider having as many investors in the business as possible since it has proved to be a sustainable business (paying debts and other liabilities and short term obligations). Moreover, the company needs to maximize the services perceived value through advertisements. Also, the management needs to improve inventory visibility; this assists in avoiding markdowns. Finally, several expenses could make the profit margin less than the actual value of the industry. Studies show that cutting off the expenses and reducing the number of workers improves this margin (Affandi, Sunarko, & Yunanto, 2019). I envisage a bright future in the business considering changes in the above-mentioned things.
Thanks in advance
Affandi, F., Sunarko, B., & Yunanto, A. (2019). The Impact of Cash Ratio, Debt To Equity Ratio, Receivables Turnover, Net Profit Margin, Return On Equity, and Institutional Ownership To Dividend Payout Ratio. Journal of Research in Management, 1(4).
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