Balance Sheet and Income Statement Commentary sample essay

On JB Hunt’s balance sheet for 2011 lists current assets of $513,542,000 and current liabilities of $438,515,000, yielding a current ratio of 1.17, which indicates the company, has $1.17 of current assets for every $1 of current liabilities. The previous year 2010, the current ratio was 0.91. This shows a 29% increase in the current ratio over the previous year. An organization with a current ratio of 2 or higher is usually viewed by lenders to be a safe risk for short-term credit. Based on the 29% increase in current ratio, JB Hunt is in a better position to obtain short-term financial than it was in 2010. However, it is still below the benchmark of 2 that lenders feel to be a safe risk. Under the economic circumstances of the past five years, lenders may take into consideration other factors such as comparing JB Hunt’s current ratio to that of other competing trucking companies. JB Hunt’s quick ratio for 2011 is 0.95 and for 2010 was 0.70. A quick ratio or “acid-test” measures cash, securities, and accounts receivables of a company in comparison to its current liabilities. The quick ratio is especially important to companies that have a history of challenges with converting inventory into cash quickly. This difficulty could interfere with the company’s ability to pay its short-term debt.

A quick ratio between 0.50 and 1.0 is typically perceived as satisfactory, but with a shadow of potential cash-flow problems. JB Hunt’s quick ratio improved by 36% over the previous year, which indicates the company, has improved its ability to meet its short-term obligations. JB Hunt’s debt to stockholders equity ratio for 2011 is 299% and 242% for 2010. This ratio evaluates the extent to which the company relies on borrowed money for its operations. A ratio over 100% indicates a business has too much debt and not enough equity to pay off the debt if they suddenly needed to do that. With a debt to equity ratio of 299%, JB Hunt has a significantly high level of debt when compared to its equity. Investors and lenders would most likely view the company to be too risky to either invest in or to lend money to.

JB Hunt’s basic earnings per share ratio for 2011 is 1.07 and 0.79 for 2010. This ratio indicates the amount of profit the business earned for each share of outstanding common stock. The earnings per share ratio reveal earnings that potentially stimulate the growth of a company and provide funds, which can be distributed as a dividend to stockholders. JB Hunt’s basic earnings per share increased by 35% over the previous year, which indicates the company has money to reinvest to ignite further growth. JB Hunt’s return on sales ratio for 2011 is 94% and 92% for 2010. This ratio indicates if the company is keeping pace with or exceeding its competitors in producing income from sales and services.

JB Hunt increased its sales ratio by 2% over last year. A 94% sales ratio is an extremely high number compared with the other three companies analyzed for this assignment. To determine how competitive this ratio is with the ratios of other trucking companies would require additional research and analysis of more companies, which is outside the scope of this assignment. JB Hunt’s return on equity ratio for 2011 is 45% and 35% for 2010. This ratio assesses risk by indicating how much a company earned for each dollar invested by shareholders. JB Hunt’s equity ratio of 45% is a profitable ratio especially since investors consider a ratio over 15% to be a reasonable return. In addition this ratio is an increase of 29% over the previous year.

UFP Technologies (Plastics manufacturing)

The 2011 balance sheet for UFP Technologies lists current assets of $58,040,394,000 and current liabilities of $9,465,304,000, yielding a current ratio of 6.13, which indicates the company, has $6.13 of current assets for every $1 of current liabilities. The previous year 2010, the current ratio was 47.62. This shows a significant increase in the current ratio over the previous year, which is due to assets acquired in 2010 due to an acquisition. An organization with a current ratio of 2 or higher is usually viewed by lenders to be a safe risk for short-term credit. Based on a current ratio that is more than 3 times what is considered to be a safe risk, UFP Technologies seems like it will have no trouble obtaining short-term credit should the need arise. UFP Technologies’ quick ratio for 2011 is 4.80 and for 2010 was 36.12. This company has an outstanding quick ratio that is 4 times what is typically perceived as satisfactory.

Based on this ration UFP Technologies should have no problem with cash flow or with paying its short-term debt. UFP Technologies’ debt to stockholders equity ratio for 2011 is 29% and 38% for 2010. This ratio indicates that the company has a low percentage of debt compared to its equity and does not rely on borrowed money to run its operations. Investors and lenders would most likely view the company to be a safe investment or a safe company to lend money to on a short-term basis. UFP Technologies’ basic earnings per share ratio for 2011 is 0.77 and 0.72 for 2010. The company’s basic earnings per share increased by 7% over the previous year, which indicates the company has some money to reinvest for further growth. UFP Technologies’ return on sales ratio for 2011 and 2010 is 12%.

There was no change in this ratio from the previous year. This ratio indicates the company may not be keeping pace with its competitors in producing income from sales and services. UFP Technologies’ return on equity ratio for 2011 is 17% and 18% for 2010. This ratio assesses risk by indicating how much a company earned for each dollar invested by shareholders. UFP Technologies’ equity ratio of 17% is a profitable ratio especially since investors consider a ratio over 15% to be a reasonable return. However, the ratio decreased by 5.5% over last which may be upsetting to shareholders who are looking for an increase in this ratio year after year and not a decrease.

United Natural Foods, Inc. (Specialty food stores)

United Natural Foods’ balance sheet for 2011 lists current assets of $8,444,492,000 and current liabilities of $463,421,000, yielding a current ratio of 18.22, which indicates the company, has $18.22 of current assets for every $1 of current liabilities. The previous year 2010, the current ratio was 1.37. This shows a 1,229% increase in the current ratio over the previous year. An organization with a current ratio of 2 or higher is usually viewed by lenders to be a safe risk for short-term credit. With a current ratio of 18.22 United Natural Foods would definitely be view favorably by lenders if the need arose to seek short-term credit. United Natural Foods’ quick ratio for 2011 is 0.59 and for 2010 was 0.44. The quick ratio is especially important to companies that have a history of challenges with converting inventory into cash quickly. A quick ratio between 0.50 and 1.0 is typically perceived as satisfactory, but with a shadow of potential cash-flow problems. Although a quick ration of 0.59 is an improvement over last year, this number is still low and indicates United Natural Foods may experience financial difficulty, which could interfere with the company’s ability to pay its short-term debt.

United Natural Foods’ debt to stockholders equity ratio for 2011 is 61% and 98% for 2010. This ratio evaluates the extent to which the company relies on borrowed money for its operations. A ratio over 100% indicates a business has too much debt and not enough equity to pay off the debt if they suddenly needed to do that. With a debt to equity ratio of 61%, which is a decrease of 37% over the previous year, United Natural Foods has significantly decreased its dependency on borrowed money to fund its operations. This makes the company more appealing to either investors or lenders since the reduction in this ratio indicates the company is less of a risk than it was a year ago. United Natural Foods’ basic earnings per share ratio for 2011 is 0.80 and 0.79 for 2010. This ratio indicates the amount of profit the business earned for each share of outstanding common stock. The company’s basic earnings per share increased by 1.2% over the previous year, which indicates the company is moving in the right direction toward increasing the earnings per share so that it can reinvest in the company and grow the company in the future.

This percentage is actually a good indicator of grow considering the state of the economy over the past 5 years. United Natural Foods’ return on sales ratio for 2011 and 2010 is 3%. This ratio indicates the company is maintaining the status quo and produced the same amount of income from sales and services this year that it did last year. This could be due to the volatile economic conditions preventing new customers from shopping at United Natural Foods because they need to find way to cut costs. United Natural Foods’ return on equity ratio for 2011 is 9% and 11% for 2010. This ratio assesses risk by indicating how much a company earned for each dollar invested by shareholders. United Natural Food’s equity ratio for 2011 decreased by of 2%, which is a disappointing number for shareholders. Investors consider a ratio over 15% to be a reasonable return.

Wells Fargo (Mortgage Company)

Wells Fargo’s balance sheet for 2011 lists current assets of $1,313,867 million dollars and current liabilities of $920,070 million dollars, yielding a current ratio of 1.43, which indicates the company, has $1.43 of current assets for every $1 of current liabilities. The previous year 2010, the current ratio was 1.48. This shows a 3.4% decrease in the current ratio over the previous year. An organization with a current ratio of 2 or higher is usually viewed by lenders to be a safe risk for short-term credit. Based on the current ratio, Wells Fargo is a risky company for any lender. Under the economic circumstances of the past five years, lenders may take into consideration other factors such as comparing Wells Fargo’s current ratio to that of other competing companies. Wells Fargo’s quick ratio for 2011 is 0.07 was 0.11. A quick ratio or “acid-test” measures cash, securities, and accounts receivables of a company in comparison to its current liabilities. A quick ratio between 0.50 and 1.0 is typically perceived as satisfactory, but with a shadow of potential cash-flow problems. Wells Fargo’s quick ratio is 0.43 points below the minimum level of satisfactory.

This company is severely at risk of not being able to convert inventory into cash quickly and may end up defaulting on its short-term debt. This is a risky company for investors and lenders. Wells Fargo’s debt to stockholders equity ratio for 2011 is 827% and 884% for 2010. This ratio evaluates the extent to which the company relies on borrowed money for its operations. A ratio over 100% indicates a business has too much debt and not enough equity to pay off the debt if they suddenly needed to do that. With a debt to equity ratio of 827%, Wells Fargo has an astronomical level of debt when compared to its equity. Investors and lenders obviously view this company as a business to avoid. Wells Fargo’s basic earnings per share ratio for 2011 is 1.50 and 1.18 for 2010. This ratio indicates the amount of profit the business earned for each share of outstanding common stock.

The earnings per share ratio reveal earnings that could potentially stimulate the growth of a company and provide funds, which can be distributed as a dividend to stockholders. Wells Fargo’s basic earnings per share increased by 27% over the previous year, which indicates the company may have some money to reinvest back into the company for growth. Wells Fargo’s return on sales ratio for 2011 is 48% and 36% for 2010. This ratio indicates if the company is keeping pace with or exceeding its competitors in producing income from sales and services.

Wells Fargo increased its sales ratio by 12% over last year. A 48% return on sales ratio is a high number. This ration indicates that the company is making strides to be competitive again. Wells Fargo’s return on equity ratio for 2011 is 11% and 10% for 2010. This ratio assesses risk by indicating how much a company earned for each dollar invested by shareholders. Investors consider a ratio over 15% to be a reasonable return. A ratio of 11% is disappointing to investors. However, it is a slight improvement over the previous year. So the company may be working on pulling itself back up and learning how to become profitable and attractive to lenders and investors once again.

References

Raibom, C.A. (2010). Core Concepts of Accounting (2nd ed.). : John Wiley & Sons Inc.. Annual Reports, http://www.sec.gov, date retrieved 06/28/2012