Current ratio: Current assets/current liabilities
For 2003: Current assets/current liabilities, $82,058/$93,975
= 82,058/ 93,975, 0.87:1
For 2004: Current assets/ current liabilities, $302,902/$337,033
= 302,902/337,033, 0.9:1
Long-term solvency ratio: Long-term debt/(long-term debt +total equity)
For 2003: Long-term debt/(long-term debt +total equity), $ 166,004/ $ 166,004+$ 359,863= 166,004/ 525867, 0.32
For 2004: Long-term debt/(long-term debt +total equity), $ 1,904/ $ 1,904 + $ 699,004
= 1,904/ 700,908 = 0.003
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Contribution ratio [(sales-variable costs)/sales] * 100 %
For 2003: sales amounted to $47,884, variable costs, $ 1,270,
Thus, [(47,884-1,270)/ 47,884]*100 = 0.97*100, 97%
For 2004: sales amounted to $ 199,905, variable costs, $ 4,026,
Thus, [(199,905-4,026)/ 199,905] * 100 = (195,879/199,905)*100 % = 0.98 *100%, 98%
Programs and expense ratio
The immediate program expense concerns payments to be made to four professionals as salaries. This amount was $ 45,954 in 2003 and $ 66,359 in 2004 respectively.
Total expenses incurred in the operation of the activity amounted to:
For 2003: $45,954 + $ 1,270 = $ 47,224
For 2004: $4,026 + $66,359 + $ 312 = $ 70,697
Therefore, programs and expense ratio
For 2003: 45,954/ 47,224 = 1: 0.97
For 2004: 66,359/ 70,697 = 1: 0.93
General and management and expense ratio
Since the management needs pay in order to manage counseling services it offers to the people, then the relevant item to be used in this case is the investment amount
For both 2003 & 2004: $ 12,000
Thus, the ratio for 2003: 12,000/ ($45,954+ $ 1,270) = 12,000/ 47,224, 1: 0.25
For 2004: 12,000/ ($4,026+$66,359 + $ 312) = 12,000/70,697, 1:0.67
Revenue and expense ratio
The relevant accounting item to be used for the purpose of calculating the aforementioned ratio is the amount posted as accounts receivables.
Thus, for 2003 the ratio is calculated as follows:
47,884/ ($45,954+ $ 1,270) = 1.01:1
For 2004: 199,905/ ($4,026+$66,359 + $ 312) = 2.83:1
Importance of the Ratios Calculated
Current ratio measures immediate current assets of a firm against its current liabilities. The ratio is used to measure the capability of a given firm to meet its current liabilities as they fall due. Long-term solvency ratio is used in provision of information, which is considered relevant in reflecting the immediate leverage position of a firm. Basically, the ratio is used to measure the capacity of a company to meet its long-term obligations. Contribution ratio is used to determine the approximate percentage of sales, which is available to an entity at any particular time to be used for the purposes of meeting all fixed costs and profits (Gumus & Celikkol, 2011).
Programs and expense ratio is crucial to determine whether the immediate undertakings are profitable or not in that matter. Usually, the ratio is calculated as a percentage of all expenses incurred in the course of firm's operations. General and management and expense ratio is used to determine the immediate measure of relevant total costs needed for operating a given form of fund with respect to the percentage of total average assets. Revenue and expense ratio is used to evaluate the performance of a given firm in respect to expenses incurred. Normally, the ratio should indicate a 2:1 correlation.
With respect to the ratios, it is fair to assume that performance of the firm has been positive and healthy over the 3-year period.
Fixed costs are the entity’s overheads, which remain constant despite the immediate changes of the production activities (Trifan & Anton, 2011).
Break-even point is the point of operations in which entities are considered to be fairly placed in order to cover for their operation costs in-adversely (Wiener, 2007).
BEP = Fixed costs/ (selling price-variable costs)
For 2003: 277, 805/ (20- 19.78) = $ 1,262,750
For 2004: 396,102/ (20- 19.78) = $ 1,800,463
Type of Feedback Provided by a Line-item, Performance, and Program Budget
The key purpose of a line item is to assist entities comprehend the fundamental determination of their respective incomes. It should be noted that in the course of determining their income, firms are advised to ensure that the income posted is able to off-set expenses incurred in the course of operations. Line budgets are also useful in determining whether or not a particular item has exceeded its budget. Some of the advantages of these forms of budgets are associated with the fact that they are easy to prepare and maintain. Thus, it is fair to assume that they allow for easier creation of substantive statistical data, which are useful in the process of saving resources. The process of creating line budgets is similar. This allows managers to use previous budgets to construct the current ones (Lindblad, 2009).
The key disadvantage associated with line budgets rests on the assumption that it is not necessary the fairest budgetary model tool. For instance, the budget does not aim to provide an explanation of the return on investments as posted by entities. Furthermore, there is a possibility that there might be witnessed compromise of items by managers. This situation may arise whenever these managers engage in unfair adjustment of items in order to match with the pre-meditated results (Lindblad, 2009).
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