Current Situational and Future Growth Opportunities Analysis
By: Robyn Berg, CMA (1072063)
MCL has been operating successfully for decades, but as times change, now they are finding themselves in a situation which requires in mediate action.
Even though MCL is still profitable, the ratios calculated (Appendix 1) indicate that the company is not very liquid, and is in risk of becoming insolvent.
CML’s liquidity ratios all fall below the commonly acceptable. For example, the quick ratio for 2011 is 0.11, when the acceptable is 1.
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10% of obsolete inventory should be put on sale for a month or so, if they are not sold I would discard or donate and write off from inventory. There is an opportunity cost to having these items on display, as items that can be sold at a gain, are not been displayed, so these items could.
The lease deposits are to be treated as prepaids, not an expense. It is recommended that the deposits paid during 2011 be re-classified to the balance sheet. For all old deposits, it is not recommended to do an adjustment. This would prepare the company for proper financial reporting and pass the external audit.
No employee should be paid in cash. This is illegal, and cannot happen in the future. Store managers and Sales manager allowing this should receive a communication explaining the implications of their actions.
Layaway program deposits should not be recorded as revenue until item is paid in full. Should be recorded as unearned revenue until then. If the item is never picked up, the 20% deposit can then be recorded as “other income”. Any deposits taken during November and December 2011, that have not been paid in full yet, should be deducted from revenue and recorded as unearned revenue until the 2 month threshold has passed. This adjustment will help pass the external audit.
Perhaps if staff received yearly