How to Analyze Your Business Using Financial Ratios

PART A 

Question 1: Operations Capability at Toyota 

Toyota Motor Corporation’s (TMC) business success in the automobile industry has been credited to the company’s focus on quality as its main operational capability. Operations capability imply a corporation’s dexterity to line up its critical processes, technologies and resources to guide its visions as well as efficiently and effectually convey client-focused value propositions. Shifting a corporation’s operations capability from one characteristic to another is likely to bear certain negative or positive influences on the firm’s operations. For example, Toyota Motors focusing on low cost rather than the traditional quality focus as its main operations capability is likely to alter the firm’s operations in a number of ways.

First, shifting the operations capability of TMC from production of quality automobiles to low cost production is likely to cost the company its global presence in the automotive market. Toyota has been able to establish itself as one of the global leaders in the automobile industry, thanks to the firm’s production of quality vehicles which are sold at reasonable prices. The company employs pioneering and high quality products and services to design reliable vehicles and also drive sustainability (“Vision & Philosophy,” 2018). Focusing on low cost production would mean that sacrifices are made on factors of production such as quality of material. Such sacrifices are likely to tarnish Toyota’s reputation as one of the most reliable motor-vehicle brand in the world.

Secondly, low cost production would imply that Toyota focuses on an all-encompassing outsourcing and subcontracting of its manufacturing operations, spending less funds on advertisement, marketing and promotion of its cars (Bailey, de Ruyter, Michie & Tyler, 2010). Advertisement, marketing and promotion are some of the vital ingredients for business success. It is even more important for firms like Toyota to conduct sufficient and far-reaching advertisements and promotions given the competitive nature of the motor-vehicle industry. Inadequate advertisement, promotion and marketing by Toyota would therefore imply that some of their products will remain anonymous to a section of its probable client base. This fact is likely to cause a reduction in sales volumes, and therefore, consequently reduce profitability.

Question 2: Differences in Strategies for Attracting Customers at FedEx and U.S. Postal Service 

FedEx Company accentuates dependability as well as specific conveyance time of the products it ferries. The U.S. Postal Services on its side, does not postulate delivery dates for its first-class mail services. The U.S. Postal Services however, charges less amounts for its mail delivery services as compared to FedEx. The U.S. Postal Services also offers its clients with free parcel pick up and packaging services (“Get rates & transit times,” 2018, and Fabregas, 2017). Additionally, FedEx appeals more to business customers whereas the U.S. Postal Service mail services can be summarized as all-inclusive, and more accessible to all. The USPS also has daily home delivery services within its portfolio of delivery services (Shurab, 2018 and Fabregas, 2017).

Part B 

Question 1: Services that a Noncertified Public Accountants perform 

Non-certified public accounts can perform a number of financial operations. Non-certified public accountants can perform bookkeeping operations. Noncertified public accountants record and organize a business’ financial transactions and other information relevant to business operations within a firm (“CPA vs. Accountant,” n.d.). They ensure that information regarding a firm’s financial operations are comprehensive, up-to-date and accurate. Non-certified public accountants may at times be required to use these details on a firm’s financial operations to prepare the firm’s financial statement. Corporate financial statements are necessary during filing of tax returns (“CPA vs. Accountant,” n.d.).

Non-certified public accountants are also eligible to perform simple-tax-allied matters, and also maintain general business accounts on behalf of a firm. Non-certified public accountants compute the total sum of tax payable by a business. Regarding general business accounts management, non-certified public accountants execute such operations as periodic checks to evaluate the profitability of a business and also advise on expenditure. They offer guidance to businesses in a bid to ensuring that the corporation’s cash inflows exceed its cash outflows (“CPA vs. Accountants,” n.d.).

Question 2: Why do the Liabilities exceeding Assets explain the need to sell the Business? 

When a business has more liabilities than assets, then it is an indication of a business going through a period of financial crisis. Liabilities denote the sum of all commitments or obligations owed by the business to other organizations or individuals. Liabilities are divide into two types; current and non-current liabilities. Current liabilities are those obligation the business must pay for during a one year duration. Examples of current liabilities within the business setup is payment owed to suppliers (Alamoudi, 2016). Non-current liabilities on the other side represents what a business owes to other organizations and that is payable within a period of more than one year. An example of non-current liabilities is money owed to a bank. On its side, assets (financial benefits and valuations attached to anything that a business possesses) are also divided into two categories namely: current and non-current assets (Alamoudi, 2016). A business’ current assets denotes resources that are likely to be consumed or converted into cash within a period not exceeding 12 months. Non-current assets on the other hand are represented by a business’ long term investments, and tangible and intangible fixed assets. When a business owes more than it possesses, it could be wise for the business owner to consider selling it out so as avoid further deterioration of returns and subsequent bankruptcy declaration (Alamoudi, 2016).

In addition, when a business has more liabilities than assets, it is an indication of poor business management. Inadequate record keeping of a business’ financial operations may render it impossible to keep corporate cash outflow and inflow in check (Auerbach, 2018). Poor planning of business operations is another aspect of poor business management that could contribute to a business having more liabilities than it has assets. Businesses having more liabilities than assets have a negative equity valuation (Auerbach, 2018). In such cases, therefore, the owner of a business should consider putting the business under fresh management, or even more effectively, sell out the business to minimize further loss-related risks.

Question 3: Why a Business with a Negative Owner’s Equity may still be worth buying 

It may still be wise to invest in a business with a negative owner’s equity when the opportunity cost of running the business supersedes the business’ debts (liabilities). Opportunity cost in business operations denotes the valuation of a business choice relative to an alternative business choice (Arora & Nandkumar, 2011). In this case therefore, Rolanda could have established in her auditor’s report that even though the business has more liabilities than assets, the total liabilities could as well be cheaper than the business’ opportunity cost. Say for example, the catering business currently has an owner’s equity of -$10, 000. However, if Mary Ann invests $20, 000 in the business, she could make $30, 000 within the first two months of operation. It is evident that Mary Ann shall have not only been able to stabilize the business at the end of a two month period, but then she will also have made a net profit of $10, 000 at the end of the two month period.

References

Alamoudi, S. (2016). The relationship between assets and liabilities in a balance sheet. International Journal of Scientific and Engineering Research, 7 (4), 1920-1924. https://www.ijser.org/researchpaper/The-relationship-between-Assets-and-Liabilities-in-The-Balance-Sheet.pdf 

Arora, A., & Nandkumar, A. (2011). Cash-out or flameout! Opportunity cost and entrepreneurial strategy: Theory, and evidence from the information security industry. Management Science 57 (10), iv-1895. Doi: doi.org/10.1287/mnsc.1110.1381 

Auerbach, A. (2018). How to analyze your business using financial ratios. Retrieved from https://edwardlowe.org/how-to-analyze-your-business-using-financial-ratios-2/ 

Bailey, D., de Ruyter, A., Michie, J., & Tyler, P. (2010). Global restructuring and the auto industry. Cambridge Journal of Regions, Economy and Society, 3 (3), 311-318. Doi: doi.org/10.1093/cjres/rsq029 

CPA vs. Accountant. (n.d.). Retrieved November 24, 2018 from https://www.accountingedu.org/cpa-vs-accountant.html 

Fabregas, K. (2017). FedEx vs. UPS vs. USPS: Who is the best for shipping? Retrieved November 24, 2018 from https://fitsmallbusiness.com/fedex-vs-ups-vs-usps/ 

Get rates and transit times. (2018). Retrieved from https://www.fedex.com/ratefinder/home?cc=US&language=en&locId=express 

Shurab, H. (2018). Business as networks: A case study of FedEx. Retrieved from http://www.academia.edu/3165972/Business_as_Networks_A_Case_study_of_FedEx 

Vision & Philosophy. (2018). Retrieved from https://www.toyota-global.com/company/vision_philosophy/