NWM6 Task 1 |Latest Update with Complete Solution

NWM6 Task 1 |Latest Update with Complete Solution




Western Governors University
Financial Management for IT Professionals
NWM6 Task 1




A. Analyze..the..Current..Ratio..measure..of..liquidity..for..Sparkit.
Please..find..attached..copies..of..Figures..A1.1..(Income..Statement)..and..A1.2..(Balance..Sheet).
1:..Understanding..the..Current..Ratio.
The..importance..for..Sparkit’s..CIO..to..understand..the..current..ratio..is..that..it..provides..t
he..CIO..with..a..measurement..of..Sparkit’s..current..overall..financial..health..and..a..mea
surement..of..Sparkit’s..assets..to..its..current..liabilities...Sparkit’s..ability..to..meet..its..fin
ancial..obligations..in..the..coming..year..or..in..the..short..term..is..reflected..by..the..curren
t..ratio...This..ratio..is..important..for..the..CIO..to..understand..as..the..current..assets..are..t
he..resources..Sparkit..has..that..can..be..quickly..converted..into..cash.
The..current..ratio..is..a..measurement..of..the..liquidity..of..the..organization,..this..number
..reflects..the..ability..of..Sparkit..to..settle..its..short-
term..debts...A..higher..number..indicates..that..this..can..easily..be..achieved...While..a..la
rger..number..is..better..for..the..most..part,..a..number..that..is..too..high..can..mean..that..t
here..is..too..much..on..hand..cash..that..cannot..really..be..used..in..the..best..possible..ma
nner,..such..as..reinvesting..in..Sparkit...It..is..important..that..Sparkit..indicate..that..they..h
ave..strong..liquidity..and..are..reinvesting..in..the..organization..and..that..Sparkit..has..a..s
trong..financial..position..with..the..ability..to..pay..off..short-term..debt..and..creditors.
2:..Current..Ratio..influence..on..decision-making.
How..the..current..ratio..influences..Sparkit’s..CIO’s..decision-
making..is..that..the..current..ratio..is..used..to..assess..the..organization's..financial..healt
h...It..provides..insight..to..Sparkit’s..ability..to..pay..off..debt..and..meet..its..short-
term..financial..obligations...This..is..an..important..number..that..will..be..used..by..creditor
s..and..investors..when..they..are..evaluating..the..financial..health..of..Sparkit.
As..the..CIO..ponders..the..decisions..that..they..are..making..in..the..short-
term..and..those..that..they..will..be..making..over..the..next..couple..of..years,..understandi

, ng..Sparkit’s..current..ratio..is..important..for..the..CIO’s..decision..making..because..an..un
derstand..of..the..current..ratio..or..financial..health..of..the..organization..is..critical..in..this.
.decision-
making..process...The..decisions..that..the..CIO..makes..will..have..an..effect..on..the..orga
nizations..cash..flow..for..not..just..the..next..year..but..most..likely..the..next..few..years.
The..current..ratio..helps..the..CIO..to..understand..where..the..organization..might..stand..
over..the..next..year..with..the..allocation..of..financial..resources,..as..the..CIO..will..want..t
o..allocate..resources..most..appropriately..and..effectively...Will..the..CIO..be..able..to..hir
e..additional..staff,..will..the..salaries..of..the..current..team..members..be..increased?..Wh
at..new..products..and..services..might..the..IT..department..be..able..to..purchase..and..i
mplement?..Many..of..the..decisions..that..the..CIO..will..make..for..the..next..year..will..dep
end..on..the..organization's..financial..health...Fortunately...Sparkit..is..currently..in..a..rela
tively..good..financial..position..with..a..current..ratio..of..1.41.
This..score..of..1.41..indicates..that..Sparkit’s..total..current..assets..are..exceeding..the..or
ganizations..current..liabilities..by..41%..and..this..is..a..relatively..good..score,..meaning..t
hat..for..every..$1.00..of..current..assets..Sparkit..has..1.41..of..current..liabilities...If..this..sc
ore..was..too..high,..it..could..potentially..mean..that..Sparkit..was..not..reinvesting..in..the..
organization..and..had..too..much..cash..on..hand.
3:..Current..Ratio..values..for..Fiscal..Year..2.
The..current..ratio..value..for..Fiscal..Year..2..is..1.41
The..formula..for..the..Current..Ratio..is..(all..dollar..values..in..millions
):..Current..Ratio..=..Total..Current..Assets../..Total..Current..Liabiliti
es..Current..Ratio..=..$51,750../..$36,652
Current..Ratio..=..1.41
The..figure..for..the..Total..Current..Assets..was..obtained..from..cell..C23..and..Total..Curren
t..Liabilities..was..obtained..from..cell..C48..in..the..Figure..2..(Balance..Sheet)..spreadshe
et.
B. Analyze..the..Ratio..of..Fixed..Assets..to..Long-
term..Liabilities..measure..of..solvency..for..Sparkit.
1:..Understanding..the..Ratio..of..Fixed..Assets..to..Long-term..Liabilities.
The..importance..for..a..CIO..to..understand..the..ratio..of..fixed..assets..to..long-
term..liabilities..is..that..this..ratio..provides..a..measure..of..the..financial..health..of..Sparki
t..and..of..the..solvency..or..stability..of..the..organization...Creditors..and..investors..of..the
..organization..would..consider..this..ratio..when..evaluating..the..financial..health..of..Spark
it..when..they..are..looking..at..investing..in..the..organization.
Understanding..this..ratio..would..allow..the..CIO..to..understand..the..financial..obligations
..of..Sparkit..and..how..the..organization..is..positioned..to..meet..those..obligations...Mean
ing,..can..Sparkit..manage..its..business..and..meet..its..obligations..and..pay..off..long-
term..debt...With..a..number..of..0.46..this..indicates..that..Sparkit..has..$.46..for..each..doll
ar..of..assets..it..has...This..is..a..relatively..good..number...If..the..number..is..too..high..this..
would..indicate..that..there..is..a..risk..that..Sparkit..would..not..be..able..to..repay..its..long-
term..debt.