This report, requested on September 23rd, analyzes ABC Enterprises balance sheet, and provides options to minimize costs as well as tax payments. ABC Enterprise High Costs and Inefficient Inventory Method Usage There has been found two main problem which are causing high operational inefficiency on the company. First, due to low inventory turnover, the day’s sales in inventory have been going over the regular two weeks period, which is the average for the companies on the same market, causing inefficient price allocation. Using the first in first out method may help explaining the order in which inventory is purchased and then sold, but it is making inventory prices’ flux to become cumbersome to correctly record cost of goods, selling price …show more content…
Therefore, in order to make the company a more interesting option in the financing market, there are several approaches that the company can follow to offer higher equity, such as increasing net income, increasing retained earnings, and increasing shares outstanding. Shareholders’ equity is the sum of three balance sheet line items: the common stock account, retained earnings and capital contributions. Whereas the common stock account reflects the par value of outstanding shares, capital contributions are the assets contributed by shareholders subsequent to the original stock issuance. As revenues increase, all other things being equal, net income increases. As net income increases, retained earnings increase by the amount of the net income less any cash dividends that are paid. If retained earnings increase, shareholders’ equity increases by the same amount. Consequently, if the company makes a new stock offering, it would increase both the number of shares outstanding and the company's paid-in capital. In turn, the stock offering will increase the dollar amount of shareholders’ equity by the value of the shares sold less the associated bank fees and other