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Decision Case
  1. Which business has more assets?

Equity = Assets – Liabilities

For Sherman Lawn Service, assets are equal to $12000

 Grey’s Groovy Tunes assets are equal to $6000+$7000= $13000

This means that Grey Groovy Tunes had more assets as compared to Sherman Lawn Service.

  1. Which business owes more to creditors?

Grey’s Groovy Tunes the liabilities are $7,000.

Using the formula Equity= Assets – Liabilities, we find that Sherman Lawn Service liabilities amount to $4,000.

Therefore, Grey Groovy Tunes owes more to creditors as compared to Sherman Lawn Service.

  1. In which business has the owner invested more?

Investment in an organization is represented as equity. Therefore, Sherman Lawn Service $8,000 as compared to Grey’s Groovy Tunes of $6,000

  1. Which business brought in more revenue?

 Greg’s Groovy Tunes $53,000 which is arrived at as a summation of the expenses and the net income. This is as compared to Sherman Lawn Service $35,000

  1. Which business is more profitable?

Sherman Lawn Service which has achieved $ 13,000 as compared Greg’s Groovy Tunes $9,000. This implies that Sherman Lawn Service is more profitable.

  1. Which of the foregoing questions do you think is most important for evaluating these two businesses? Question 1&5

Why? Question 1 because assets indicate the financial stability of a company and is sustainability in the long run. They also show the ease of liquidation of the company in case it needs to be wound up. Question 5 because good and high profits indicate a company is growing and have the capabilities of expanding, managerial improvements, good remunerations, highly competitive and business continuity. This means that this differentiates the successful businesses from those that are failures.

  1. Which business looks better from a financial standpoint?

Sherman Lawn Service because it is more profitable and has fewer liabilities as compared to Greg’s Groovy Tunes.



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