Critical Analysis: Computer Software Development Companies

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Numbers are imperative to not only describing how a firm is doing, but can also display what the firm actually does. Knowing for certain what the assets are made up of in a firm, where the debt is held, and where its equity stands are all key financial information that provide insight to managers on how the firm is performing. Moreover, understanding and dissecting the financial ratios of a company can paint a clearer picture as to what industry the corporation is involved in along with its financial statements. In this memo, assumptions are made off of critical analysis when matching certain companies with their respective industries. The three companies that I have chosen to do my analysis on are supermarket chains, computer software development, …show more content…
Since a firm like this is selling software, an intangible item, inventory costs are going to be incredibly low. From the balance sheet, company #2 has an inventory value of 0.0% of total assets and a non-applicable inventory turnover.
Research and Development Computer software development companies always have to be using resources towards research and development. This is because they have to find the most efficient and optimized way to creating and maintaining its software. Company #2 has a research and development ratio of 17.50%, second highest of all companies listed. This makes a lot of sense because, as stated earlier, high level of competition will keep software development firms occupied on trying to put the best, most updated product out there.
Gross Margin

Many software development firms enjoy a low cost of goods sold value since software is an intangible asset that is not expensive. Company #2 has a tremendously high gross margin of 96.3%. This means that this company is able to sell goods at an enormous price while the cost to sell it are very low. With corporations all over the world looking for the next best software that will make its business more efficient, they are willing to pay a large
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The three figures chosen to support that company #3 is a commercial bank are accounts receivable, accounts payable, and receivables collection.
Accounts Receivable

One of the most popular services commercial banks provide are loans. When businesses come to a bank for a loan, they will have to pay it back in a certain amount of time with interest. Company #11 has accounts receivable at 58.9% of total assets, the highest by a wide margin. Accounts receivable relates to the loans because it is by definition the money a company has the right to because of a service provided.
Accounts Payable

While accounts receivable is relative to loans, accounts payable is relative to deposits. When business deposit a sum of money into a bank, they still have a right to take the money back. Company #11 has an accounts payable of 84.7% of total liabilities. Comparing this value to the other eleven companies listed, this is the highest by over 40%. Commercial banks having larger amounts of payable than receivables make sense since deposits are more frequent.
Receivables

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