Maria Hernandez Case

MARIA HERNANDEZ van NESS TEAM 10 The boloney female horse Hernandez & Associates is a confederacy that initiationed its byplay with a money deposit. On June 20,2004 m atomic number 18 Hernandez transferred all her savings of $30,000 into a immature Bank account chthonic her alliances name, ii days afterwardswards she transferred an other $20,000 which she had borrowed from her father on a 6% p. a. recreate rate. Thus, with an amount of $50,000 in its bank account mare Hernandez and Associates was defecate to start its manners in the Webpage aim sector.After the Bank account transactions, Maria Hernandez rapidly took c be of the sign expenses that complicated pre-paid contract for the new run intoice, giving a protective summit deposit for the same, buying used computers and package from her previous employers and also ordering and acquiring office stationary. On July 2,2004 Maria Hernandez & Associates cap qualified its doors for business. The substance o f our report covers the first two calendar months of the beau mondes ope dimensionns. At the start of the ope proportionalityns i. e.July 2nd, 2004 the amount in the follow bank account was $12,000 however on solemn 31st, 2004 (roughly two months of opeproportionns) the amount had subsided to $6,600. We are therefore left with two chance on questions to answer. 1. How would we report on the operations of Maria Hernandez & Associates through August 31, 2004? Had the gild do a profit as Maria Hernandez believed? If so, how can we explain the decline of coin in the bank? 2. What can we say about the status of the business on August 31, 2004?To answer these questions we analyzed the companys income statement and balance sheet of paper for the months of July-August, 2004 and yield come up with the side by side(p) summary and clues Financial Ratios Through the epitome of the Income Statement and Balance Sheet, we were qualified to reason the following Ratios, which gave us an insight into the whole works of Maria Hernandez & Associates Financial Ratio Figures electric current Ratio 4. 17 Return on Equity 13% Return in Assets 7% Profit Margin 9. 8% Debt to Equity 0. 74 By and large, the ratios displayed are lower than ideal. However, wedded the fact that the operation is further 2 months old, the figures are very promising particularly since there was an increase in work load of the company in early August with four new clients by look of referrals. Considering all the ratios in more elaborate we would care to start our analysis with hard roe ratio that measures a companys profit capacity.We deplete 13% what means that the company is making 13 cents out of every dollar invested. This figure is relatively low, still for a start-up company it is kinda satisfactory, because it indicates a growth opportunity with increasing operations. ROA ratio shows us how many dollars the company makes in relation to its assets, thus 7 cents per 1 d ollar. The ratio is deceptive because by explanation a lower ratio denotes ineffectual use of assets. But considering a start-up that operates for only 2 months, there is a orbit for improvement since the number of operations has been increasing.In addition, this ratio can vary depending on the application in which the company operates. This is why our suggestion to Maria Hernandez is to compare ROA every month in order to be able to realize how productive or unfertile the business is. Profit margin represents the fortune of gross that a company keeps as profit after accounting for dogged and variable cost. In other words, it is companys health indicator. The company is retention 9. 8 cents of sales as gain for every dollar that the company earns.It is a good sign because the company was able to recoup the initial fixed costs and also showed a profit in the books within 2 months, on the other cash in ones chips the usual trend for web-page design companies to show a profit is 1-2 years. Debt to rectitude ratio indicates extend to which the business relies on debt financing. As we know, Maria Hernandez borrowed $20,000 from her father at 6% interest rate and invested $30,000 immediate ante upment from her own savings. In addition, the company do revenue of $40,000 in cash that helped to cover all the expenses and operational purchases.So, we can discontinue that the company is growing on cash mainly and in the tech fabrication this ratio is bound to go down, because erstwhile the assets computers and software are acquired there is no look at to take on debt to grow the company, as the growth can come from the revenue itself. On an average computer companies have a Debt to Equity ratio of under 0. 5 Current ratio that shows the ability of the company to pay off its liabilities at a given period of while is the only point of concern. As a rule the acceptable figure is surrounded by 1 and 2, in our case we have 4. 7, what means that Maria Herna ndez can pay off her loan with interest however, she has some(a) excessive cash on hand what indicates inefficient management of funds. Suggestions We would first like to address the matter of treating the Interest and Depreciation. The interest is accumulating and since the interest has to be paid at the end of the year, the amount at the hour is incomplete. Therefore, the interest payable should be accounted in the Balance Sheet, and interest expense in the Income Statement. In case of the equipment, accumulated disparagement is to be taken into consideration.The derogation per month is $750, thus the accumulated depreciation is $1500 after 2 months of operation. As the expected life of the equipment is 3 years Maria Hernandez should conviction the accumulated depreciation for 1/3 of the value of the assets, subtract accumulated depreciation from the equipment in the Balance Sheet and include depreciation expense in the Income Statement. An analysis of the Expense to Income rat io showed that currently 86% of the income is being used to write off expenses such as rent and salaries, which explains the decline in the bank balance as on August 31st.We recommend reduction such expenses by retentivity fewer full-time staff and hiring interns or keeping staff on a irregular basis at least for the initial period of the companies life. Conclusion In outcome we would like to say that Maria Hernandez & Associates is doing rather well as a Start-up company. The metrical composition are mostly in its favor, and are bound to get better as the life of the company progresses. The only damage in the design is by room of the expenses incurred in form of Salaries, which can easy be fixed.