Current Assets: The current assets are coming from three mains accounts in balance sheet of the financial year of a company. Indeed, the current assets show us a picture of the financial state of the company at the end of this year:
-At first the amount of cash or in other words the money earned by the company from their sales for example or even from their loan borrowed to the bank
-Secondly, the account receivables which is the money that the company have already earned by selling their products to their customers but they have not already paid to the company. In other words, the account receivables is the money resulting from the sales of the company during this financial year but not effectively paid by their customers and that the company will actually receive in the next few weeks or months (such as a debt from the customer to the company). It is all the stakeholders as clients, customers and so one owe to the company.
-Thirdly, the inventory features all materials and products manufactured by the company that the company has not sold for the moment.
To finish, we can call the current assets as short term assets because these accounts are supposed to be back into cash within less of one year.
[...] Include an answer to the following questions: Current Assets: The current assets are coming from three mains accounts in Balance Sheet of the financial year of a company. Indeed, the current assets show us as a picture of the financial state of the company at the end of this year: At first the amount of cash or in other words the money earned by the company from their sales for example or even from their loan borrowed to the bank Secondly, the account receivables which is the money that the company have already earned by selling their products to their customers but they have not already paid to the company. [...]
[...] What is the difference between Current Assets and Fixed Assets? The current assets are supposed to be able to turn into cash within only one year as short term assets whereas fixed assets has to last inside the company for more than one year such as computers for our IT department or machines to produce our products. The fixed assets are therefore more difficult to be turned into cash than current assets because currents as account receivables can turn into cash within usually 30 or 60 days for the money due by our clients to the company for example. [...]
[...] That can potentially create some financial troubles for the company by a kind of contagious effect. To raise it, the company can increase its account receivables or decrease its daily sales but the company does not have a real reason to do it. On the contrary, if the Days Sales Outstanding is too low, it is pretty good for the cash of the company that is therefore increasing. Nevertheless, it can become a strategic problem because the competition maybe can give more time [...]
[...] Which types of companies have higher Financial Leverage? Companies with higher financial leverage are the ones which prefer to borrow money from the bank. Indeed, the financial leverage shows us the degree to which a company is utilizing borrowed money. When the financial is high, companies are using debt in order to finance its Assets. Does the company in your calculations have high or low financial leverage? According to my calculations: Total of Assets = 250 Total of Liabilities = 200 and Total of Equity = 50 So Financial Leverage = 250 / 50 Financial Leverage = 5 The company has a relatively high financial leverage. [...]
[...] The Dupont Equation is the following: ROE = (Net Income / Sales) x (Sales / Assets) x (Assets / Equity) ROE = Net Profit Margin x AssetTurnover x Financial Leverage. ROE = ROA x (Assets / Equity) We use this equation to calculate the Return On Equity for an organization. The Dupont Equation breaks down what compose the Return on Equity and the Return on Assets. Here, sales and assets cancel each other. Which types of companies have higher Net Profit Margins? [...]
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