Maria Hernandez Case

MARIA HERNANDEZ VAN NESS TEAM 10 The Story female horse Hernandez & Associates is a phoner that started its business with a cash deposit. On June 20,2004 female horse Hernandez transferred all her savings of $30,000 into a new Bank account beneath her orders name, twain days later she transferred another $20,000 which she had borrowed from her sky pilot on a 6% p. a. interest rate. Thus, with an nub of $50,000 in its camber account Maria Hernandez and Associates was ready to start its life in the Webpage design sector.After the Bank account transactions, Maria Hernandez quickly took cargon of the initial expenses that acknowledge pre-paid rent for the new patch, giving a security deposit for the same, buy gived computers and software from her previous employers and also ordering and acquiring take outice stationary. On July 2,2004 Maria Hernandez & Associates opened its doors for business. The substance of our cross covers the first twain months of the fellowships o pe rations. At the start of the operations i. e.July 2nd, 2004 the amount in the company bank account was $12,000 however on August 31st, 2004 (roughly two months of operations) the amount had chastised to $6,600. We are therefore left with two key questions to answer. 1. How would we report on the operations of Maria Hernandez & Associates through August 31, 2004? Had the company make a clams as Maria Hernandez believed? If so, how can we explain the decline of cash in the bank? 2. What can we say about the positioning of the business on August 31, 2004?To answer these questions we analyzed the companys income statement and balance sheet for the months of July-August, 2004 and have come up with the avocation digest and suggestions pecuniary Ratios Through the analysis of the Income Statement and poise Sheet, we were satisfactory to extrapolate the following Ratios, which gave us an insight into the workings of Maria Hernandez & Associates Financial Ratio Figures Current Ra tio 4. 17 Return on fair-mindedness 13% Return in Assets 7% Profit Margin 9. 8% Debt to Equity 0. 74 By and large, the ratios displayed are spurn than ideal. However, given the fact that the operation is lonesome(prenominal) 2 months old, the figures are genuinely promising especially since there was an increase in workload of the company in early August with four new clients by way of referrals. Considering all the ratios in more details we would like to start our analysis with ROE ratio that measures a companys profitability.We have 13% what means that the company is making 13 cents out of every(prenominal) sawbuck invested. This figure is relatively low, but for a start-up company it is rather satisfactory, because it indicates a advanceth opportunity with increasing operations. ROA ratio shows us how many dollars the company makes in relation to its assets, thus 7 cents per 1 dollar. The ratio is shoddy because by definition a lower ratio denotes inefficient use of assets. But considering a start-up that operates for only 2 months, there is a place setting for improvement since the number of operations has been increasing.In addition, this ratio can vary depending on the industry in which the company operates. This is why our suggestion to Maria Hernandez is to differentiate ROA every month in order to be adequate to(p) to determine how productive or unproductive the business is. Profit margin represents the percent of revenue that a company keeps as profit after account for fixed and variable costs. In other words, it is companys health indicator. The company is keeping 9. 8 cents of sales as earnings 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 batch the accustomed trend for web-page design companies to show a profit is 1-2 eld. Debt to equity ratio indicates extend to which the business re lies on debt financing. As we know, Maria Hernandez borrowed $20,000 from her father at 6% interest rate and invested $30,000 cash from her own savings. In addition, the company made revenue of $40,000 in cash that helped to cover all the expenses and in operation(p) purchases.So, we can conclude that the company is growing on cash principally and in the tech industry this ratio is bound to go down, because sortingerly the assets computers and software are acquired there is no need 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 time is the only point of concern. As a rule the acceptable figure is between 1 and 2, in our case we have 4. 7, what means that Maria Hernandez can pay off her loan with interest however, she has some excessive cash on hand what indicates ineffi cient management of funds. Suggestions We would first like to address the matter of treating the interestingness and Depreciation. The interest is accumulating and since the interest has to be paid at the end of the year, the amount at the moment 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 depreciation is to be taken into consideration.The depreciation 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 credit the accumulated depreciation for 1/3 of the revalue 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 ratio showed that before long 86% of the income is being used to write off expenses such as rent and s alaries, which explains the decline in the bank balance as on August 31st.We recommend reducing such expenses by keeping few full-time staff and hiring interns or keeping staff on a part-time basis at least for the initial period of the companies life. induction In conclusion we would like to say that Maria Hernandez & Associates is doing rather considerably as a Start-up company. The numbers are mostly in its favor, and are bound to get better as the life of the company progresses. The only flaw in the design is by way of the expenses incurred in form of Salaries, which can easily be fixed.