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Similarities between accrual basis and cash basis
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Comparing Better Brew and Perfect Blend Coffee Comapnies
After years of dreaming about owning you own business, you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you and your partners decide to look at two existing establishments, Better Brew and Perfect Blend. The two are for sale at the same price, and they are located in equally attractive areas. You manage to get enough financial data to compare the year-end condition of the two companies.
What factors should you consider before deciding which company to buy? What additional data might be helpful to you? (Not that net income is implied). We have the Balance sheets for the year end which is the statement of financial position and the snapshot of the company's financial position on a particular date. The financial statements give us an indication of how the business is performing and where it stands at a particular time. I would want some history of the two businesses such as the age of the business, profitability, liquidity, activity, and leverage. This information is useful in analyzing how well the company is performing in relation to previous performance, the economy as a whole, and the company's competition (Bovée, Thill, & Mescon, 2005, p. 421). Other factors to consider are the appearance of the business, length of time of ownership, seasonal peaks, reasons for personal withdrawals, owner's salaries, supplier information, existing inventory systems, type and age of equipment, leases on equipment and buildings, available space for the business, possibilities for expansion, number of employees, benefits offered to employees, and accounting principles used. Additional data that would be helpful include other financial documents including the an income statement to get a general sense of the company's size and performance as well as the statement of cash flows to see how the company's cash was received and spent for the operations, investments, and financing (Bovée, et al., 2005). Another factor to consider is information on the industry average or regional competitors.
What questions should you ask about the methods used to record revenues and expenses? It is important to know if the accounting for the businesses is done on a cash-basis or accrual-basis. In the cash-basis method, the revenue is recognized when cash is received and the expense is recognized when the cash is paid out.
This requirement makes it important to look through a majority of the return ratios, which include return on sales, return on assets, and return on equity. Additionally, investors are also interested in the ratios related to the company’s earnings, such as earnings per share (EPS) and PE ratio. Looking at return on sales, we can see that Wendy’s has a 7.27% return on sales and Bob Evans has a 1.23%, which demonstrates Wendy’s has a higher profit margin. Moreover, Wendys’ return on assets is 2.85% and Bob Evans is 1.58%. Also, Wendy’s and Bob Evan 's have return on equity ratios of 6.66% and 4.30%, respectively. All of these return ratios show that Wendy’s has a better handle on turning working capital into revenue. On the other hand, although Wendy’s return ratios are higher than Bob Evans, Bob Evans has a better performance on earnings per share and PE ratio. This is due to Bob Evans having less common stock share outstanding, which makes their earnings per share and PE ratio higher than Wendy’s. Due to the EPS being higher for Bob Evans, we would recommend that investors look towards Bob
Select any five (5) financial ratios that you have learned about in the text. Analyze the past three (3) years of the company’s financial data, which you may obtain from the company’s financial statements. Determine the company’s financial health.
In order to review the historical health of the firm I will calculate different ratios and gross margins and would try to see the trend. I will use Gordon Growth Model to find out the sustainable growth rate for the firm using historical data and then would compare it with its actual growth rate.
The amount of the sales should also be fixed and determinable. The principle of revenue recognition also assumes that cash will be collected in a timely manner. This means that upon receiving payment for goods or service revenue should be recorded and in the case of prepaid expense revenue is recognized when it is earned. For example you have a year prepayment of rent each month and when the rent becomes due you will debit your rent account and credit your prepaid rent account, because then the rental payment would be earned/
The larger serving size of Great Cups of Coffee is perhaps the most apparent gage that will improve appeal for the company’s customers. Receiving extra of a proportionately quality product for a comparable price obviously works as an enticement for customers to prefer Great Cups more than the opposition. While customers identify with a better quality and superior taste with fresher coffee, Great Cups supports its effective model of serving coffee that has been roasted no more 72 hours ago and that is blended and ground right at the store. Great Cups also provides as an unintended marketing method community bulletin boards and assists with book club gatherings as well as
There are many valuation methods that could be used to evaluate this company. Finding a method that valuates the stand-alone value is difficult. The stand-alone value should be dependent upon the firm’s own assets and projected future income. We decided to evaluate this company based upon two methods: The Discounted Cash Flow Method and the Comparable Companies Method.
Each competitor 's current ratio, quick ratio, and cash ratio are able to be found in this exhibit for the year ended in 2015. McDonald’s currently has a cash ratio of 0.76, a quick ratio of 1.20, and a 1.52. Starbucks has a cash ratio of 0.44, a quick ratio of 0.64, and a current ratio of 1.19. Finally, the Dunkin Brand Group Inc. has a cash ratio of 0.59, a quick ratio of 0.74, and a current ratio of 1.25. When looking at these ratios one is able to find that compared to its competitors, Starbucks is less liquid than McDonald 's and Dunkin Brand Group
Caribou coffee is a specialty coffee and espresso retailer. At the end of 2013, packaged coffee sales were at an all-time low category wide and Caribou had closed roughly 80 stores across the nation. According to the Chicago Tribune, Caribou Coffee had to close stores after evaluations showed they would not be meeting their sales expectations. Caribou brought on Exponent PR and Colle+McVoy to find a new marketing approach.
The purpose of this report is to analyze Target Corporation’s financial statements, determine the future growth potential of the company, and make a recommendation for or against the acquisition of the company.
Transactional Processing The accounting software packages developed and distributed by Sage and Microsoft, respectively, each use their own methods for recording accounting information. Sage 50. There are three different areas that must be discussed. These are the revenue, expenditure, and financing cycles. These areas are written about from the author's own knowledge from using the software, as learned from the book by Carol Yacht (2013).
There is a range of criteria relevant for a decision of financing a new venture. To construct my list for the evaluation of a new company as an opportunity I have selected to refer to t...
You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future.
Making an analysis of the profitability of the shareholder can be seen that although both companies have similar returns, the source of this return is different.
Accounting in business, follows a particular process either in small scale business or large scale businesses with step by step process. Here is the straight forward procedure of accounting to know the organization current situation.
The accounting cycle is a series of steps starting with recording business transactions and leading up to the preparation of financial statements. This financial process demonstrates the purpose of financial accounting–to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.