Cash_and_Accrual_Basis_for_Paper

Financial Statement and Cash Accrual Analysis Paper Financial Statement Analysis Company Choices The task of choosing three companies from manufacturing, the service sector, and retail sales consisted of several factors. One of the choice clauses was that one company be a foreign organization. Adidas was chosen for being a German shoe company which is only second in shoe retail sales to Nike. Cintas is an established service provider of uniforms to nationwide organizations that embrace employee dress codes with brand recognition. Lastly, Mitsubishi was selected for being a manufacturer of cars, and televisions as well as several additional electronics. After computing the current liquidity ratios, the DuPont ration, profit margin, asset utilization and financial leverage of each company the current text will discuss the differences in each industry. In addition, the same discussion will explore how the different measurement conventions of each industry affect presentations in relation to the International Account Standards Board and the Financial Account Standards Board. In order to compute the quick and current liquidity ratios, the DuPont ratios, profit margin, asset utilization, and financial leverage of each of the companies the authors researched the web and were able to acquire the appropriate information which will be provided as a factual significance dictating the differences between the cash basis and the accrual basis. The differences will be based on the standards of the ISAB and the FASB which are the International Accounting Standards Board and the Financial Accounting Standards Board. The IASB sets the standards for accounting and publishes these standards internationally because of the numerous companies operating outside of their own country. These international companies much follow the standards of their own country as well countries abroad the globe in which business exchanges are being made (IASB, 2009). The FASB is the standing accounting standards publisher which sets the bar here in the United States (FASB, 2009). The basic and obvious difference between the two organizations is that FASB uses the United States as its primary focus although it must remain informed of what is taking place internationally. The IASB operates globally and focuses on foreign exchange including US exchange. The purpose of each is to standardize ethics in accounting based on “relevance and reliability” (FASB, 2009). The standards of each board must be current and mirror any changes in the process of business as it correlates to the economic environment as well as noticeable areas of underachievement. Each entity is under scrutiny to perform ethically within the purpose of each organization’s incarnation. Differences between Cash Basis and Accrual Basis Accounting When an organization has to determine what accounting method is appropriate for the company, it has two choices, cash basis, and accrual basis. Each has a different criteria that determines, and records revenue and expenses on financial records. For instance, receivables and payables are recorded on accrual basis, not for cash basis. According to Horngren, (2008) “cash basis revenues are recorded when cash is received and deposited (p. 687).” Unlike accrual basis, “income and expenses are recorded when they occur in a fiscal period instead of when the company receives or pays cash. (Horngren, 2008. p. 687).” Depending on the organization, the decision to use cash or accrual basis depends on how the company will do business. According to Horngren (2008) “companies conduct more that 95% of all business on a credit basis” (p.688); therefore a company providing a service or a product is more than likely providing this service on credit. Another difference between cash and accrual basis, cash basis does not show expenses and revenues accurate measures of performance and financial position and accrual basis shows a complete and a more accurate financial status of the company. Conclusion In retrospect, each company although have differences in operational and service methods each has reached respectable success with its industry. Ethically, based on limited knowledge and research there is nothing distinctly visible in the area of accounting that would indicate wayward accounting methods. The authors are in agreement that each company with continue to operate as they have been if there are no drastic changes to their existing methods. Adidas (Sales) (Financials in Millions) Quick Ratio = Current Assets-Inventory = $4806 -$2041 = 0.886 Current Liabilities $3121 Current Ratio = Current Assets = $4806 = 1.5399 Current Liabilities $3121 DuPont Ratio = (Sales/Avg. Assets) x (Net Profits/Sales) x (Avg. Assets/Avg. Equity) = ($5034/$9043) x ($12/$5034) x ($9043/$2967.5) = 0.0040 Gross Profit Margin = Sales – Cost of Goods Sold = $5034-$2583 = 0.487 Sales $4798.5 Asset Utilization = Net Sales = $2269 = 0.1.112 Inventory $2041 Financial Leverage (Debt-to-Equity Ratio) = $3121 = 0.979 $3189 Cintas (Service) (Financials in Millions) Quick Ratio = Current Assets-Inventory = $1270.3 -202.4 = 3.363 Current Liabilities $317.5 Current Ratio = Current Assets = $1270.3 = 4.00 Current Liabilities $317.5 DuPont Ratio = (Sales/Avg. Assets) x (Net Profits/Sales) x (Avg. Assets/Avg. Equity) = ($3774.7/$3765) x ($226.4/$3774.7) x ($3765/$2310.8) = 0.0980 Gross Profit Margin = Sales – Cost of Goods Sold = $3774.7-2223.8 = 0.0895 Sales $3774.7 Asset Utilization = Net Sales = $1550.9 = 7.663 Inventory $202.4 Financial Leverage (Debt-to-Equity Ratio) = $317.5 = 0.134 $2310.8 Mitsubishi (Manufacturing) (Financials in Millions) (Foreign Company - Japan) Quick Ratio = Current Assets-Inventory = $61,346-$10,832 = 1.076 Current Liabilities $46,937.5 Current Ratio = Current Assets = $61,346 = 1.33 Current Liabilities $46,937.5 DuPont Ratio = (Sales/Avg. Assets) x (Net Profits/Sales) x (Avg. Assets/Avg. Equity) = ($60,736.2/$55,581) x ($3714.8/$60,736.2) x ($55,581/26,985.9) = 0.1377 Gross Profit Margin = Sales – Cost of Goods Sold = $60,736.2-$48,930.8 = 0.1944 Sales $60,736.2 Asset Utilization = Net Sales = $11,805.4 = 1.090 Inventory $10,832.0 Financial Leverage (Debt-to-Equity Ratio) = $46,937.5 = 1.622 $28,936.1 References Adidas. Investor Relations. Retrieved October 6, 2009, from http://www.adidas-group.com/en/investor/key_financial_data/default.asp Cintas. Investor Relations. Retrieved October 6, 2009, from http://www.hoovers.com/cintas/--ID__12979,ticker__CTAS--/free-co-fin-factsheet.xhtml Financial Accounting Standards Board (2009). About FASB. Retrieved October 6, 2009 from http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176154526495 Horngren, C. T. (2008). Introduction to Management Accounting (14 ed.). Upper Saddle River, NJ: Prentice Hall. International Accounting Standards Board (2009). Welcome to IASB.org Retrieved October 6, 2009, from http://www.iasb.org/Home.htm Mitsubishi. Investor Relations. Retrieved October 6, 2009, from http://www.hoovers.com/mitsubishi-corp./--ID__55546,ticker__MSBHY--/free-co-fin-factsheet.xhtm l