Please use attachment to answer question below
Using the same Company that you selected, peruse the annual report. Is there any evidence (provide the proof) that your company budgeted for its operations? If no evidence, do you think your company would have prepared budgets? Of the budgets mentioned in Chapter 22, which type of budget would your company have most likely prepared and why?
Sheet1
| Understanding Accounting and Financial Analysis using Public Entities | ||||
| Hovnanian Enterprises | ||||
| A. Ratio analysis for Hovnanian Enterprises for FY2022 | ||||
| a. Current ratio | ||||
| The current ratio for Hovnanian enterprises is calculated by dividing total current assets by total current liablities as shown below; | ||||
| Current ratio = Total current assets/total current liabilities | ||||
| Total current assests calculation | ||||
| Total current assets | ||||
| Cash and cash equivalent | 326198 | |||
| Restricted cash and cash equivalents | 13382 | |||
| Total inventories | 1519184 | |||
| Receivables, deposits and notes | 37837 | |||
| Prepaid expenses | 63884 | |||
| Total current assests = | 1960485 | |||
| Current liabilities | ||||
| Accounts payable | 439952 | |||
| Customer deposits | 74020 | |||
| Accrued interest | 32415 | |||
| Income taxes payable | 3167 | |||
| Total current liabilities | 549554 | |||
| From the above data, the current ratio for Hovnanian Enterprises can be calculated as (1960485/549554) | ||||
| Current ratio | 3.57 | |||
| b. Debt to assets ratio | ||||
| The debt ratio or the debt to asset ratio of Hovnanian Enterprises is calculated by dividing total liabilities by total assets as shown in the formula below; | ||||
| Debt ratio=Total liabilities/Total assets | ||||
| Total liabilities= | 2178979 | |||
| Total Assets= | 2562030 | |||
| Debtratio=(2178979/2562030) | ||||
| Debt ratio=Total liabilities/Total assets | 0.85 | |||
| B. A Trend Analyis for Hovanian Enterprises | ||||
| A horizontal analysis compares financial data for a company over the years to identify trends and changes. | ||||
| To perform a trend analysis of Hovnanian Enterprises' Cash, accounts receivable and retained earnings, data from 2022 and 2021 will be utilized. | ||||
| It is performed by finding the percentage of the value change from 2022 to 2021, i.e., the value of subtracting the 2021 value from the 2022 value, which is then divided by the 2021 value and multiplied by 100%. | ||||
| Hovanian Enterprises' horizontal analysis is as shown below; | ||||
| Account | 2021 | 2022 | Change | Percentage change |
| Cash | 311396 | 382190 | 70794 | 23% |
| Acounts receivable | 39934 | 37837 | -2097 | -5% |
| Retained earings | -352413 | -567228 | -214815 | 61% |
| The total cash for the years 2022 and 2021 value is found in the last part of the statement of cashflows which shows total cash, cash equivalents and restricted cash. | ||||
| The values for the retained earnings are located in the balance sheet in the shareholder's equity section which shows accumulated deficit or surplus. | ||||
| C. Write-Up |
From the financial data calculated and comparing it to the industry averages, Hovnanian Enterprises, Inc. demonstrates robust financial health. The company's current ratio of 3.57 in 2022 significantly surpasses the industry average of 1.5, for construction industries, indicating a strong capacity to meet its short-term obligations. This shows a healthy liquidity position, enabling it to handle unexpected expenses and operational needs with ease (Coulon, 2020). However, the debt ratio of 0.85 for Hovnanian Enterprises is above the industry average of 0.48. While it is higher, it is still within manageable levels. A debt ratio above the industry average might imply that the firm has a relatively higher level of debt compared to its industry peers (Messer, 2020). Nevertheless, data from the trend analysis is favorable. The 23% increase in cash from 2021 to 2022 signifies improved liquidity, while the 61% growth in retained earnings demonstrates profitability and the ability to retain earnings for future expansion and resilience. The 5% decrease in accounts receivable also showcases efficient management of receivables, which enhances cash flow. Therefore, Hovnanian Enterprises, Inc. is in excellent financial health, with strong liquidity, reasonable debt management and favorable trends in key financial metrics. References Coulon, Y. (2020a). Presentation of key financial metrics and enterprise value. Rational Investing with Ratios, 1–29. https://doi.org/10.1007/978-3-030-34265-4_1 Messer, R. (2020a). Common financial ratios. Financial Modeling for Decision Making: Using MS-Excel in Accounting and Finance, 325–325. https://doi.org/10.1108/978-1-78973-413-320201020