The second area that appears to be normal are the balances for the property plants and equipment accounts. Over the past year the value of land had not changed, which it shouldn’t, unless land is acquired, because land is not depreciable. The plant and equipment balance went up by $300,000 and accumulated depreciation went …show more content…
While comparing the return on assets ratio for Big Time to the industry standard, I found that in 2016 the actual ratio was fairly close to the industry standard. The industry standard for consumer publishing is 4.63% while their ratio in 2016 was 4.09%. This means that Big Time is having about the same return earned on the resources invested by both the stockholders and creditors as many other companies in the industry.
The first major area of concern that would require additional investigation would be the decrease in the cash account. From 2015 to 2016 the cash account dropped by $120,000. This causes concern because there could possibly be a loan covenant linked to the bank line of credit they too out. If Big Time were to somehow break the loan covenant, it may cause a going concern if they do not have enough liquid assets to pay off the loan. A shrinking cash account could also mean that Big Time would have a hard time expanding their business which could lead to their competitors taking over the …show more content…
The inventory account has risen $460,000 in just one year, which is cause for concern. Big Time may be holding onto inventories that are becoming harder to sell or are obsolete. The days of inventory on hand has gone up from 115 days to 127 days in the past year, this means that Big Time is having a harder time selling inventory this year than they did last year. Holding onto a lot of inventory also caused for concern because there is a possibility of damage or loss from disaster or theft. The additional threat of damage or loss could cause Big Time to pay more money for insurance to protect their