Good Example Of Research Paper On Accounting Project
Analysis of sustainable growth of the company is a dynamic analytical framework that combines financial analysis with strategic management to explain the critical relationships between variables of strategic planning and financial variables, as well as to verify compliance with corporate growth objectives and financial policy. Financial analysis allows determining the presence of existing opportunities for financial growth of the company, establishing how the company’s financial policy will influence the future and analyzing the strengths and weaknesses of the competitive strategies of the company. Published reports and accounts of companies contain a lot of numbers, the ability to read this information allows analysts to know how efficiently and effectively their company and companies-competitors are run. Coefficients allow seeing the relationship between the profit from sales and expenses and between the main assets and liabilities.
The American Red Cross
It is the US publicly traded not-for-profit organization, which provides indigent people with necessary help, namely lifesaving facilities and packages. It works in cooperation with additional Red Cross units all over the world. The organizations was established in 1881by Clara Barton. Its mission is in prevention and improvement of social suffering notwithstanding difficulties by activating the influence of volunteers and the open-handedness of donors. The basic principles of the global company consist of, first of all, humanity, fairness, noninvolvement, individuality, voluntary service, harmony and universality. Currently, the followers, enthusiasts and personnel of the American Red Cross offer empathetic carefulness in five crucial aspects, namely societies, who suffered from cataclysms in America; sustenance for participants of the army and their relatives; blood recovery, handling and spreading; health and security instruction and teaching; and global assistance and progress.
Federal Deposit Insurance Corporation
It is US government entity functioning as an autonomous organization established by the Banking Act of 1933. Its mission is to sustain steadiness and civic assurance in the population’s financial system by protecting deposits, inspecting and managing financial foundations for security and reliability and customer safety, and supervising insolvencies. The company follows certain values, namely honesty, competence, teamwork, efficiency, accountability and justice. Starting August 2014, it offers deposit coverage assuring the security of a depositor’s financial records in associate banks equal to $250,000 for every deposit proprietorship group in every covered bank. It does not offer deposit coverage for credit unions.
Financial Analysis of the American Red Cross compared to Federal Deposit Insurance Corporation
The comparison of financial condition of both companies will be made according to the results in 2013 FY, because FDIC didn’t publish 2014 annual report on its website. First of all, it should be stated that the American Red Cross’s operating revenue and gains in 2013 was $3,435,941. FDIC’s revenue achieved $10,458,866.
One of the most important indicators of any company’s financial condition is its liquidity. Balance sheet liquidity is the coverage of organization’s obligations by its assets, which reflects the rate of return to the circulation of money invested in various types of assets and liabilities. The matter of how long this process takes depends on the degree of liquidity. Thus, current ratio (calculated as Current assets divided by Current Liabilities) of ARC was 2.29 and of FDIC – 4.29. Both companies show positive result, because the normal value of the ratio should be equal or exceed 2. So, organizations are able to pay for their short-term obligations by available current assets. Their capacity to reimburse is quite optimistic. However, FDIC’s ratio is high, which can be caused by irrational capital structure.
Cash ratio (calculated as Cash and cash equivalents divided by Current Liabilities) is another one indicator of liquidity, which defines the quickness of the company to reimburse its temporary debt only by cash and cash equivalents, excluding accounts receivable and inventory. ARC’s cash ratio was 0.16, while FDIC’s – 0.25. So, ratio value should be at least 0.2 that the company could repay its short-term obligations every day at least by 20%.
One of the characteristics of the stability of the organization is its financial stability. The main objective of the analysis of financial stability is to evaluate the degree of independence from the sources of borrowed funds. Debt to equity ratio (calculated as Total liabilities (Net assets in not-for-profit organizations and Total Fund balance in government organizations) divided by Shareholder’s equity) is financial solvency coefficient, which shows how much leverage is necessary to USD1 of own funds. ARC’s ratio was 0.96 and FDIC’s – 0.3. It is obvious that American Red Cross is definitely dependent on the loan proceeds, especially taking into account its nature. Federal Deposit Insurance Corporation as governmental organization is financed from government budget.
Company’s ability to generate profits impacts on its short-term liquidity or solvency. In this regard, such aspect of the business as profitability is considered. This is both qualitative and quantitative indicator of the effectiveness of any organization. The activity of not-for-profit organization doesn’t relate to the financial result. In assessing the effectiveness of NFP organization the great importance concerns the analysis of social outcomes that reflect the degree of achievement of the main objectives of such organization. One such result is Weisbrod social index, the coefficient of social profitability (publicness index). It is calculated as Revenues from the provision of public goods divided by Revenues from the provision of private goods. Revenues from the provision of public goods are charitable contributions, grants, government grants, etc. Revenues from the provision of private goods include the sale of goods, services and works; as well as membership and sponsorship contributions. Therefore, the level of profitability of ARC can be recorded 0.5. Concerning governmental organization, its profitability is usually lower than of private as well as the state holds lucrative monopoly policy of low prices for the products and services of the public sector. The Return on equity ratio as important indicator of profitability can be calculated as Net income divided by Total Fund balance. Therefore, FDIC’s ratio was 0.3. ARC has better attractiveness than FDIC.
Non-profit organizations in the formation of income are eligible for the widespread use of such sources of financing as admission and membership fees, voluntary contributions and donations, trust receipts from individuals and legal entities, and others. The right to raise additional sources of income generation is given to NFP organizations in exchange for a commitment to create predominantly public goods, to provide social support, to implement the professional, amateur, public interests of certain groups of the population, potential profits are not distributed among the founders (participants) non-profit organization (with the exception of consumer cooperatives). In general, ARC financial condition is effective according to the performed analysis. It should work on the increase in its profitability.
Governmental organizations have advantages of the greatest economic stability (thanks to the support of the state); anticipation of the economic prospects, when working under the state plan; and receipt of state orders and material resources for continuous technological progress. FDIC’s financial condition is also positive.
Both organizations are liquid and can properly repay its short-term debts. The differences are in financial stability, namely ARC’s dependence on borrowings, while FDCI depends on the equity expressed via government support and in the nature of profitability, when it was found that ARC is more attractive for stakeholders in comparison with FDIC.
American Red Cross (2015). Who We Are. Retrieved from http://www.redcross.org/about-us
Federal Deposit Insurance Corporation (2015). About FDIC. Retrieved from https://www.fdic.gov/about/
Keown, A. J., Martin, J. W., Petty, W. D. and Scott, D. F. (2001). Financial Management: Principles and Applications (9th Edition), Prentice Hall.