Financial Statement Analysis for Tellabine and XYZ Corporation

This assignment presents a comprehensive financial statement analysis, encompassing two key assessments. The first assessment involves drafting a business letter to the CFO of Tellabine Company, addressing concerns about decreasing cash flow despite increasing sales. The letter analyzes the impact of accounts receivable and recommends daily reviews of key accounts to improve cash management. The second assessment focuses on a loan denial scenario for XYZ Corporation, where the student, acting as a loan officer, prepares a professional letter to the applicant. The analysis includes a review of the cash flow statement, balance sheet, and the impact of inventory, accounts payable, and wages payable on the loan decision. Both assessments demonstrate an understanding of financial ratios, accounting concepts, and effective business communication.

Running head: FINANCIAL STATEMENT ANALYSIS 1
Financial Statement Analysis
Business Letter
Student’s Name
Institutional Affiliation
Professor’s Name
Date

FINANCIAL STATEMENT ANALYSIS 2
Financial Statement Analysis
Assessment 1: Letter to the CFO
To the CFO,
Tellabine Company,
Denver, Colorado.
Dear Mrs. Patricia,
It has come to the realization that the cash flow has decreased tremendously making it difficult
for the company to make payments to the vendors and other employees. Therefore, there is a
need for urgently to address the issue to resolve the financial problems to enable the
sustainability of the operations.
It is notable that there is a growth in account receivables where the clients are acquiring the
products on credit thus making a low cash flow within the short period. The faster increase in the
receivables than the sales implies that we are experiencing a low receivable turnover ratio that
determines the efficiency in collection of the sales on credit among the customers (Mun and
Jang, 2019). Concisely, the little cash despite high sales is also attributed to the loans being
offered to the clients that are costly to the company. Additionally, the accounts payable have
gone up due to the delayed payment of the vendors. Keeping track on daily short-term balance
sheets such as payments, purchase orders, and invoices would enable the company to make
adequate payment to the vendors as soon as the company is credited. The inventory entries are
also registered to be decreasing indicating that there is a significant amount of sales being made.
To increase the cash flow, there is the necessity to minimize the growth in the accounts
receivable through promoting the cash sales rather than on credit basis as well as reduce the rate
of issuing loans to the clients. Moreover, it is recommended that the company keep a track on all

FINANCIAL STATEMENT ANALYSIS 3
the expenditures and other financial statement analyses to enable out payments to different
stakeholders to reduce the amount payable by the organization. Monitoring of the inventories
would be essential in determining the sales made concerning the cash received.
Yours respectively,
[Signature]
[Name and organization]
Assessment 2
Loan denial letter
XYZ Corporation
[Address]
[Date]
[Name and position]
Dear Mr. Bob,
It is with great regret to inform you that your organization does not qualify for the applied
renewal loan that is in line with our purpose of financing and empowering businesses.
From the analysis of the cash flow statement, it was noted that the cash went up by only $16845
to $33411 as opposed to the proposed $70000 by the bank. Despite the decrease in the accounts
receivable by $58563, the company could not meet the minimum requirements set for a renewal
of the loan for the next financial year 2018. The decrease in the accounts receivable should have
enabled the company to raise the cash balance and the marketable securities to be liable for
applying for financial crediting as recommended by Harris, Roark, and Li (2019). Concisely, the
financial statement indicates an increment in inventory from 2014 by $71079 which affects the
economic order quantity implying that more goods are held by the company that should be sold

FINANCIAL STATEMENT ANALYSIS 4
out to boost the cash balances. An increment in inventory implies that the rate of sales has
reduced from the previous financial years (Nobil, Sedigh, and Cárdenas-Barrón, 2019).
On the other hand, the company incurs increased liabilities due to an increase in accounts
payable where it owes the vendors money as well as an increase in wages payable making the
accrual accounts very high. The accounts and wages payable are a significant risk to financial
constraints which affects the credit score for the company due to significant liabilities that
increases the chances of the potential loan defaulting (Mun and Jang, 2019).
However, due to the strong established relationship between the bank and the company, the
management would like to recommend that increase the cash and market securities for the
organization as proposed in the previous years, minimize the inventory as well as encourage
more cash sales rather than credit sales to mitigate the accounts receivable as much as possible.
Moreover, reducing the liabilities such as accounts payable and wages payable would give the
organizations decent chances for accessing the loan (Huang, Ying, Yang, and Hassan, 2019). The
bank would like to extend sincere apologies for any inconveniences that could be caused by the
denial. Kindly address the above issues to be able to access our loan services.
Yours Sincerely,
[Signature goes here]
[Author’s name, XYZ Corporation]

FINANCIAL STATEMENT ANALYSIS 5
References
Harris, C., Roark, S., & Li, Z. (2019). Cash flow volatility and trade credit in Asia. International
Journal of Managerial Finance.
Huang, L., Ying, Q., Yang, S., & Hassan, H. (2019). Trade Credit Financing and Sustainable
Growth of Firms: Empirical Evidence from China. Sustainability, 11(4), 1032.
Mun, S. G., & Jang, S. (2019). Indicating restaurant firms’ financial constraints: a new
composite index. International Journal of Contemporary Hospitality Management.
Nobil, A. H., Sedigh, A. H. A., & Cárdenas-Barrón, L. E. (2019). A generalized economic order
quantity inventory model with shortage: case study of a poultry farmer. Arabian Journal
for Science and Engineering, 44(3), 2653-2663.