The Balance Sheet is a financial report that provides useful information in a financial analysis. This statement namely helps the financial analyst to asset the liquidity and financial stability of the organization, by conducting vertical and horizontal analysis. These financial examinations will be conducted for L. L. Sams and Melinda Garcia Career Services below. Liquidity of Organizations Considered Working Capital = Current Assets – Current Liabilities L. L. Sams = $108,500 - $12,000 = $96,500 Melinda Garcia Career Services = $19,000 - $6,000 = $13,000 The working capital of L. L.
Sams is much higher than that of Melinda Garcia Career Services. This indicates that L. L. Sams holds more liquid assets than the other organization. This is a sound factor for the liquidity of the firm. The proportion of debt capital in relation to equity is very high for Melinda Garcia Career Services. This means that the organization has a higher amount of debt in relation to equity. Such factor does not apply to L. L. Sams, which holds a very low gearing. Therefore it is more difficult for Melinda Garcia Career Services to meet its debt commitments rather than the other company, leading to a weaker financial stability.
Recommendation on Company to invest in From the calculations computed above it is more viable to provide the loan to L. L. Sams rather than the other company. However, before rushing into any drastic conclusions it is important to consider the profitability of the companies. Such information can be derived by looking at their Income Statement.
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Investopedia. com (2009). Gearing Ratio (on line). Available from: http://www. investopedia. com/terms/g/gearingratio. asp (Accessed 29th April 2009).
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