a) The below mention financial information is with regards to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30.
June Year 2018.
b) The above table brings many observations and compares the strength of the two companies in terms of management skills, investors, shareholders, and stakeholders. The financial statement has been prepared to keep in mind to consider the three most important entities: Assets, Liabilities, and Equity. On comparing we get to know the following points about the two companies.
The ease of converting assets to cash for Liquid Inc. is more given that the data of quick ratio is higher although the inventories are not considered clearly indicating its high ability to meet the current debts of the company.
The current ratio in the financial statement for Liquid Inc. is also good suggesting that it has cash, marketable securities, accounts receivable and inventory in reasonable stocks and that short-term debt and accrued liabilities are in control.
On checking its ability to stay solvent i.e., to measure its actual cash flow-rather than the net income- by including back depreciation and other non-cash expenses, it is found that that solvency ratio dips against the run of the play indicating that the firm has financial leverage a bit high. The debt seems to be exceeding the equity by more than three times and nearly two-thirds of assets have been financed by debt.
The sale of antivirus software in accordance with a new standard policy called IFRS and US GAAP has the following revenue policies to adopt.
a) A single source of revenue is to be considered for all the entities in this industry.
b) The idea is to accelerate the recognition of revenue so IFRS has introduced many policies for the same.
c) The policies include recognizing the contract(s) with a customer, the performance obligations in the contract(s), determining the transaction price and allocating it to the performance obligations and recognizing the revenue as soon as the entity satisfies each performance obligation (Ifrs.org 2019).
The depreciable amount of this software is allocated on a systematic basis over the best estimate of its useful life. The amortization commences as soon as the software comes in use.
The Liquid Inc. and the Big Bang Pvt. Ltd. have both applied for a short-term loan of $6000. While it is to confirm that Liquid Inc. has been preferred over the Big Bang Pvt. Ltd., the reason for the same is given below. The process that followed the decision-making is also given in short.
On analyzing the business plan module, the following points were considered.
a) The quality of businesses of each firm, their services, and the products
b) The quality in terms of experience and the result of the management teams of each firm
c) The environment
d) The target market
e) The financial statements of each firm over a period of one year.
The next step was to understand the business of each firm, the purpose of the loan and the method of repayment and the risks after character, collateral, capacity, capital, and conditions were discussed.
Liquid Inc. was thought to be more experienced in its business and its reputation is far higher than the Big Bang Pvt. Ltd. in the market. The Overall economy after considering the current assets and liabilities was in favor the Liquid Inc.
These all factors worked in favor of The Liquid Inc firm in getting the loan.
The following points were considered while going for Liquid Inc. instead of the Big Bang Pvt. Ltd.
Location of the firm
Furniture and types of equipment
The level of the employees in terms of training
The customer base
The competition that each firm faces and the ways they both deploy to tackle with it.
The financial records
It was observed that the debt ratio of the big bang Pvt. Ltd. was much higher than the Liquid Inc. firm. The cash flow of the Liquid inc. was enough to pay for the debt and employees. The trend in sales was appreciable for this firm. So it was better to go for The Liquid Inc. firm.
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