Barnes and Fischer, a countrywide CPA firm, is determining whether to take Ocean Developing as a customer. Ocean Production is a medium-sized manufacturer of small cookware. This would be a new comer to Barnes and Fischer, that has current clients in the healthcare service sectors.
I are writing this memo to suggest that you reject Ocean Manufacturing being a client. Sea Manufacturing provides a favorable marketplace position and growth potential, things that Barnes and Fischer are looking for.
They ended their current auditor so they can build a romance with a nationally established CPA (CERTIFIED PUBLIC ACCOUNTANT) firm. That might make it possible for Ocean Manufacturing for making an initial open public offering of its prevalent stock within the next few years. The difficulties with Sea Manufacturing happen to be their insufficient experience a manager and their aggravating new THIS system. The reason for the lack of encounter in management is caused by the resignation of the vice president of procedures and of the controller. That they both got jobs in different cities due to personal problems.
The THIS system retains integrated products on hand, accounts receivable, accounts payable, payroll, and general journal software themes. It was dealt with mainly by former controller, but with him now absent, it would be hard for a fresh controller to adapt to that with no experience. Problems possess existed, such as inventory checking and expense accumulation, receivables billing and aging, salaries tax deductions, payables, and balance sheet account classifications. If you look at Ocean Manufacturing’s return about equity of 8. 94% and returning on resources of some. 4% and compare these to the average sector ratios, they are really considerable low. It means that they can be not acquiring enough money back on their opportunities and assets. The various other consideration you should look into is their inventory turnover rate. Ocean Developing has an products on hand turnover rate of six. 08 while the average is usually 8. 09. This means that they can be holding more inventory than they are advertising. The inventory turnover charge effects the periods in products on hand ratio which can be 59. 98 compared to the common of 41. 25.
The final major problem can be Ocean Manufacturing’s profit margin which is five. 5%, even though the average is definitely 10. 58%. This steps how much outof every dollarof sales a firm actually keeps in earnings. When I met with the previous auditor, he explained that Sea Manufacturing had problems in relation to the difficulties with the fresh IT program and management’s tendency to aggressively reveal year-end accruals in order to meet up with creditors’ requirements. He likewise said that his firm’s relationship with managing at Marine Manufacturing was difficult right from the start. This difficulties me.
Imagine if we have a similar problems and not agree with Water Manufacturing. From this article you can see, Jane, similarly, if we recognize Ocean Developing, Inc., it might be good for all of us to have a consumer in the home appliance industry, especially one that contains a favorable industry position and growth potential. On the other hand, the difficulties are their lack of encounter in management and a annoying new IT system. Right up until they have even more managerial knowledge and can modify the new THAT system to control the company, I really do not think we should recognize Ocean Production as a consumer.