Patch work Essay Example | Topics and Well Written Essays - 1000 words - 1

Patch work - Essay Example Additionally, the company uses marginal costing on sales/production basis to determine the cost of the variables whereas the fixed costs do not depend on the level of activity. This pitch will play a vital role to the investors in persuading them to finance the new product. Turnover measures the ability of a company to use its assets in generating sales (Wild, Bernstein &Subramayan, 2001). there are various turnover ratios that are useful to the investors which include accounts receivable turnover and inventory turnover. The accounts receivable turnover of 0.94 shows that Martez Company is more efficient in managing its credit policy thus eliminating the possibility of realizing bad debts. This is a good indicator to the investors as they are assured that their resources will not be lost to the debtors who refuse to pay. Another turnover ratio is the inventory turnover ratio which is a ratio that shows the efficiency of the company in selling its products so as to generate sales that is the number of times that the inventories are converted into sales within a year. An inventory turnover of 1.25 implies that the Martez Company is very efficient in converting the inventory at hand into sales and therefore more revenue will be generated as shown in the forecast. The investors will be interested to see this forecast of the inventory turnover so as to know the how efficient Martez is in generating revenues. Profit margin is a profitability ratio that shows how effective the cost of production is controlled in relation to distribution and administration expenses and also the financing cost (Eriotis, 2005). One way of measuring the value of the business by using the assets on the balance sheet (Meigs & Meigs, 1993). The total value of the assets on the balance sheet are regarded as the company’s investment and therefore showing the true value of the company. Martez Company has total assets amounting to