Generic Organizational Strategy Integration Impacts

Question: Discuss about the Generic Organizational Strategy Integration Impacts. Answer: Introduction: Bean bag Pty Limited (BB) is the manufacturers of Bean bag in wide level. They manufacture wide range of Bean bag that are styled in different ways like double and single bean bags and made uo of various materials like fur fabric and denim fabric. Their main customers are aged between 18 years and 24 years. Current ratio: Current ratio states the ability of the company to pay off its current liabilities with the available current assets. The industry average for current asset for the year 2013 is 2.84 and for the year 2014 are 2.97. As per the audited financial report of the company, the current ratio of the company is 2.89, which is slightly higher than the industry average. However, the current ratio for the year 2014 is 3.44 as per the unaudited financial report of the year, which is quite high as compared to the industry average of 2.97. Chances are there that the current assets are overstated or the current liabilities are understated. Therefore, the auditor should assess the current assets accounts with regard to the risk of material misstatement (Shih et al. 2014). Inventory turnover ratio: This ratio reveals that how many times the inventory of the company is sold and substituted over a particular time gap. The inventory turnover ratio of the company for the year 2014 as per the unaudited financial report is 3.2, which is on the lower side as compared to the industry average of 3.7. The reason behind this may be the overstatement of cost of goods sold or misstatement of opening or closing inventory. Therefore, the auditor must evaluate the inventory level to minimise the risk of material misstatement (Bell 2015). Return on total assets: This ratio explains the companys net earnings before deducting taxes and interest compared to the total assets of the company. Return on net assets of the company for the year 2014 as per the unaudited financial report is 11%, which is quite high as compared to the industry average of 5%. The reason for this high ratio can be the understatement of total assets. Therefore, the auditor must estimate the total asset to minimise the risk of material misstatement (Alvi and Ikram 2015). Times interest earned: Interest coverage ratio or times interest earned ratio is a measure to calculate the ability of a company to pay off its debt interest with the available profit before interest and tax. The interest coverage ratio of the company for the year 2014 is 4.2, which is quite high as compared to the industry average of 3.3. Therefore, the auditor must assess the debt and applicable interest on the debt (Taleizadeh et al. 2013). Material misstatement risk associated with the ratios and additional information: Current assets: If the current assets are overstated, it will increase the current ratio of the company. Management recently purchased leopard printed fabric which is to be included in the inventory. It should be properly assessed by the auditor that the exact quantity has been included in the inventory and is not overstated. Moreover, the returned Beanbags should be included in the closing inventory at the exact quantity. Overstatement of closing inventory will increase the inventory level, which in turn will overstate the current assets (Zheng et al. 2013). Inventory: If the inventory is misstated, it will affect the inventory turnover ratio. For example, overstatement of inventory will decrease the inventory turnover ratio of the company. The auditor must evaluate the recently purchased leopard printed fabric and the returned Beanbags to check that it has been included in the closing inventory at exact quantity. Overstatement of these inventories will increase the level of average inventory and which in turn will decrease the inventory turnover ratio (Feng et al. 2014). Total asset: If the total assets of the company are understated, it will increase the return percentage on total assets of the company. The auditor should assess their inventory level properly and if required, they should physically check the inventory level. Various assets of the company should be assessed properly to check whether they are recorded at exact amount and quantity. Overstatement or understatement of various assets will decrease or increase the return percentage on total assets. Interest: if the interest is understated, it will increase the times interest earned ratio. As per the given information, the interest rate in beanbag revival is decreased during 2014. It will decrease the interest obligation of the company. Moreover, the information is given that loans were negotiated during the year 2014. It will further decrease the interest liability. The auditor must assess that the decreased obligation of interest has been properly given in the financial report. Otherwise, it will have the impact on the interest coverage ratio. References: Alvi, M. and Ikram, M., 2015. Impact of Total Assets and Net Income on Return on Equity of Small Medium Enterprises of Pakistan. Bell, C., 2015.Generic organizational strategy integration impacts on profit margin ratio and inventory turnover in publically traded Oklahoma manufacturing organizations(Doctoral dissertation, INDIANA STATE UNIVERSITY). Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management.The Accounting Review,90(2), pp.529-557. Shih, C.J., Wang, Q.H., Son, Y., Jin, Z., Blankschtein, D. and Strano, M.S., 2014. Tuning onoff current ratio and field-effect mobility in a MoS2graphene heterostructure via Schottky barrier modulation.ACS nano,8(6), pp.5790-5798. Taleizadeh, A.A., Pentico, D.W., Jabalameli, M.S. and Aryanezhad, M., 2013. 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