Week Two Accounting
Mike Riedmuller, Myrone Gammon, Romila Logarajah, Aaron Langlois, Aliyah Harmon
University of Phoenix
Week Two Accounting
Toyota, The Home Depot, and United Airlines are all major corporations and are publicly traded. They all produce annual financial statements, though the period for each differs slightly. For the annual report published in 2009 all three companies show the wider difficulties that the economy has inflicted on them. Looking at some key ratios can give some insight into each company. Each ratio, the impacts of the accounting regime the company is under, and looking at the type of accounting, accrual or cash, gives insight into each company and the accounting process.
The ratios give specific insight into the companies, but one ratio is a poor indicator of anything much. Ratios should be compared historically, and should be compared against other companies in an industry in order to provide relevance. This is because each industry is slightly different, and a stand alone ratio may not be an indicator of anything within operations of the company.
The quick ratio is a measure of a company’s ability to pay short term liabilities. It excludes inventory since some companies may find it hard to liquidate inventory in a short period of time (investopedia, 2009). The higher the ratio the better a company is doing. In the case of all three companies it appears as though they have a low quick ratio, but not one that is an indicator of an issue. In the case of United Airlines it is difficult to measure inventory since the product they sell is seats on a plane to multiple destinations. In the case of a service company like United it may not make much sense to use a quick ratio. For both Toyota and The Home Depot the measure is significantly more appropriate.
The current ratio is very similar to the quick ratio. A number under a one suggests that a company will not be able to pay off its debts. In the case of...