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Riordan Manufacturing Analysis

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Autor:   •  February 13, 2011  •  Case Study  •  2,703 Words (11 Pages)  •  1,527 Views

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Riordan Manufacturing Analysis

University of Phoenix Online

BSA 500


Riordan Manufacturing is a global plastics manufacturer and a leader in the field of plastic injection molding. This paper will provide a brief background history of the company, some identified core values, ratio analyses, a variance analyses on the companies financials, an analysis of the current accounting systems and recommendations on providing appropriate communicative and data gathering software for the future accounting systems.

Riordan Manufacturing Analysis

The objective of this paper is to provide an analysis of Riordan Manufacturing’s financial situation and its current financial system. Included in this paper is a brief overview of company values, an analysis of company financial statements and ratio’s, accounting modules, and additional modules that should be connected to Riordan’s accounting system.

Company Background & Core Values

Founded by Dr. Riordan in 1991, the company's focus was on research and development and the licensing of its existing patents, but in 1993, the company expanded into the production of plastic beverage containers when it acquired a manufacturing plant in Albany, GA. Their advanced capability allows them to create innovative plastic designs that have earned international acclaim. Currently with 550 employees and facilities in Albany, Georgia, Pontiac, Michigan, Hangzhou, China and San Jose California they have projected annual earnings of $46 millions.

Riordan Manufacturing values being a nationwide leader in implementing diversity in the workplace. Through innovative ideas from many different cultures and traditions Riordan designed a company where recruitment, development and retention of diverse talent are a priority. Employee diversity continues to enhance the development and delivery of innovative products to customers all around the world. Global marketplaces and the communities served by Riordan Manufacturing benefit from this major commitment to embrace and respect a diverse labor force.

Other core values of equal importance are attention to detail, extreme precision, and enthusiastic quality control. Providing customers with “value-added solutions to their most demanding design challenges” (Virtual Organizations Portal, 2005) remains a company standard. With facilities in San Jose, California, Albany, Georgia, Pontiac, Michigan and Hangzhou, China, they have the capacity to fulfill client’s unique needs, provide innovative solutions, products and services at a reasonable cost, and seek, through their commitment to their core values, to develop long-term relationships with customers.

Financial Analysis

Financial ratios are indicators of a company's performance and financial condition. The following analysis shows Riordan Manufacturing’s ratios and how they can be used in making financial decisions. Here, we have compared two separate years of financial data to facilitate forecasting and analyses.

Liquidity Ratios

Liquidity Ratios are used to provide information about a company's ability to meet short-term financial goals or obligations. The current ratio is the ratio of current assets to current liabilities (for example):

Current Ratio = Current Assets/Current Liabilities.

Current Ratio: 2003 = 15,415,168/5,836,032 = 2.64

2004 = 14,643,456/6,029,696 = 2.42

With a current ratio higher than 2, the company is performing in line with market expectations. The current ratio for its industry is 1.8.

One downside of the current ratio is that the “hard to liquidate inventory” may be included in the equation. The Quick Ratio is an alternate method:

Quick Ratio = Current Assets вЂ" Inventory/ Current Liabilities.

Quick Ratio: 2003 = 15,415,168 - 8,074,880/5,836,032 = 1.25

2004 = 14,643,456 вЂ" 7,854,112 / 6,029,696 = 1.12

A Quick Ratio between 0.5 and 1.0 is usually considered satisfactory. But a ratio under 1.0 may also be a hint of some cash flow problems. Riordan’s Quick Ratio is over 1 which indicates that the company should not have any problem meeting its short-term obligations. The Quick Ratio for its industry is 1.3.

Financial Leverage Ratios

These ratios are used to provide an insight of the long-term solvency of a company. They differ from Liquidity Ratios by indicating how a company is using its long-term debt.

Debt Ratio = Total Debt/Total Assets.

Debt Ratio: 2003 = 14,158,976/35,637,504 = 0.39 = 39.7%

2004 = 12,160,256/33,856,256 = 0.35 = 35.9%

A Debt Ratio above 100% indicates that a company has more debt than equity. Riordan has a low level of debt compared to its equity, which informs us that it is safe to lenders and investors. The Debt Ratio for its industry is 1.85.

The Interest Earned Ratio shows how a company's earnings can pay for interest payments on debt.

Interest Coverage = EBIT/Interest Charges

(EBIT = Earnings before interest and taxes).

Interest Coverage: 2003 = 4,020,541/217,092 = 18.5

2004 = 3,246,122/230,221 = 14.1

Not only does a lower times Interest Earned Ratio signifies that less earnings are accessible to meet interest payments but also the company is more susceptible to increases in interest rates. The interest earned ratio for its industry is 15.5.

Profitability Ratios

Profitability Ratios indicate a company's ability to generate profits.

Gross Profit Margin = Sales вЂ" Cost of goods sold/Sales.



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