# Sample Finance Paper on Best People Inc Analysis

Current ratio
Current Ratio = Current Assets/Current Liabilities
Current Assets = \$ 294,120
Current Liabilities = \$ 66,840
Current Ratio = 294,120/66,840

=4.4

This ratio shows that Best People Inc is healthy and has enough resources that can meet its short
term obligations.

Acid-Test Ratio

Acid-Test Ratio= (Cash+Marketable Securities+Receivables)/Current liabilities
Cash= \$ 39,120
Marketable securities=\$ 4,000
Receivables= \$75,000 Acid-Test Ratio

[Surname] 2

Current Liability= \$ 66,840
Acid-Test Ratio= (39,120+4,000+75,000)/66,840

=1.78

This acid-test ratio value is greater than the conventional acid-ratio of 1. It shows that Best
People Inc. is financially strong enough since its short-term assets can cover for its immediate
liabilities.

Debt to Owner’s Equity Ratio
Debt to Owner’s Equity Ratio = Total Liability/Owner’s Equity
Total Liability= \$ 66,840
Owner’s Equity= \$ 496,280
Debt to Owner’s Equity Ratio= 66,840/496,280
=0.1347*100
=13.47%

This means for every \$100 the owner provided, \$13.47 was borrowed. This is a low debt to
equity ratio thus implies that Best People Inc. is a financially stable business.

Return on Sales (ROS)

ROS = Net Income/Net Sales
Net Income= \$ 15,897
Net Sales= \$278, 500

[Surname] 3

Return on Sales (ROS) = 15,897/278,500
=0.057*100
=5.7%

This means that for every \$100 sales, Best People Inc. makes a profit of \$5.7. This shows that
Best People is operationally efficient.

Return On Equity (ROE)

ROE = Net Income/Owner’s Equity
Net Income= \$ 15,897
Owner’s Equity= \$ 496,280
ROE=15,897/496,280
=0.032*100
=3.2%
This means if I expected an average of 12-15% of return from my investment, Best people Inc.
Does not meet my expectations. This is because the profitability of the firm doesn’t meet what I
was looking up to during my investment.

Inventory Turn Over Ratio
Inventory Turn Over Ratio = Cost of Good Sold/Average Inventory
Cost of Good Sold=\$ 154,500
Average Inventory= \$ 73,000

[Surname] 4

Inventory Turn Over Ratio= 154,500/73,000
=2.114

This shows that the average inventory was sold or turned 2.114 times in that year.
This means if you are using Nike with an Inventory Turn Over Ratio of 4.5 and Starbuck Coffer
with an Inventory Turn Over Ratio of 14.7 as a benchmark, Best People Inc. don’t turn over their
inventory efficiently because their ratio is lower than both Nike and Starbuck Coffee.