Question

How do the following activities affect the strength, weakness, or a neutral effect on the financial condition of a company

Revenues over expenditures

Level of business activity

Property values

Unfunded pension liability

Unemployment rate

Answer 1

Revenue over Expenditures: Strength

If the company’s revenue are above expenditures, it means it carries profit in its books. The Net Profit ratio as of sales entails the company’s performance as compared to its competitors in same industry. If the Net Profit ratio is higher than the competitors, it means the company carries advantage over its competitors. It can procure loans easily in market, enjoys greater market reputation, increased stakeholder faith.

Level of Business Activity: Strength

If the company’s level of business activity is above the normal activity level attained by other players in industry, it means higher revenue in books. Higher revenue means the company is bigger in size from the perspective of revenue. Though level of business activity in whole do not decide the strength but it adds strength in the form of making company a Top selling company.

Property Values: Neutral

A Company main objective is operations. An increase in property value doesn’t affect the financial books since the properties are carried at cost since these properties are not hold with the intention to sell.

Unfunded Pension Liability: Weakness

Unfunded Pension Liability: When a company pays off its staff pension obligations out of current income rather than from a designated Pension Fund, it means the company has not been able to create fund from its past income. This becomes weakness for the company since this liability is meant to be paid out of fund created over time not from current year income. Company will be disclosing this fact in its financials as well.

Unemployment rate: Weakness

If the Unemployment rate is increasing, it will affect financials as well. As Increased Salary expense for reduced number of units. By this, overall profit will decrease and the confidence of employees will also go down.