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Riordan Manufacturing Accounting System Analysis Essay

Riordan Manufacturing Incorporation is the transformation of Riordan Plastics, Inc which was founded in 1991 by Dr. Riordan in response to the commercial application of Research and Development in processing polymers. Riordan Manufacturing is wholly owned by Riordan Industries. With revenues in excess of $1 billion, Riordan Industries has entered into the Fortune 1000 enterprise distinction.

The transformation which took place 1992 was made possible by the Venture Capital which Dr. Riordan obtained. Originally Riordan was a manufacturer of plastic fan parts used primarily in the automotive industry. In 1993, the company acquired a beverage container manufacturing plant in Albany, GA and as a result expanded into that industry, and . In 2000, the company began a joint venture operation in China and subsequently moved the entire fan manufacturing from Michigan to China. The company also had a facility in Pontiac where custom plastic parts are manufactured .In other words, Riordan Manufacturing Inc has plants in Georgia, Michigan, California and China with Corporate headquarters in San Jose.

Riordan Manufacturing Inc has maintained successful operations and earnings of around $6 million with 550 employees. Riordan Incorporated has maintained effective operations through quality management in Finance and Accounting, Sales and Marketing, Human Resources, Operations, Legal and Information Technology. Riordan Manufacturing Incorporated is focused on “achieving and maintaining reasonable profitability to assure that the financial and human capital is available for sustained growth.”

Recommended Accounting Software

At Riordan Manufacturing Inc., the accounting software utilizes the basic components such as general ledger entries with accounts payable and accounts receivable, sales and purchasing with invoicing and purchasing, payroll, and financial reporting with EDI and barcode reading at the San Jose office. Even with these systems in place, Riordan should incorporate the following systems for increased tracking, accountability, and reporting, as indicated on _Accounting Software Porta (2009)_:

ERP Software – ERP spans the businesses operations and becomes involved in many of the areas where companies are innovating.

Manufacturing Accounting Software – Accounting software generally requires little customization. Manufacturing systems on the other hand can become incredibly intricate. This is because manufacturing execution systems MES are one of the areas where most companies tend to innovate.

Accounting CRM System – Because businesses tend to innovate when focused on customer service an agile system is almost an imperative if you’re shopping for accounting CRM software. Agile systems are systems that allow your team to be involved in the design cycle.

Software Summary

The systems mentioned above will help to combine the worldwide plants into a single system that can be used to input invoices, manufacturing data, and forecasted business operations. This will allow Riordan Manufacturing Inc. to glance at any office and view manufacturing, operations, and accounting data “real time” because all the systems are linked together and operating on the same software. This ensures that the financial data is consolidated instantly and the general ledger and accounting functions are less labor intensive, which saves man-hours and costs at the month-end and year-end closures of the books. Training will be handled by the software vendors to assure for a smooth transition from the previous system of processes. The training will span from upper management to the production departments and finally to shipping, receiving and finance department. Since all parts will connect through a series of networks, the data will need to be in a uniform format. This format should be generated by the software in a consistent stream with encryption.

Accounting Systems

The Systems in Riordan Manufacturing that can be connected to its Accounting System are all the sources of financial information within the Riordan Manufacturing Industries. In other words,” the inputs to an accounting system include sales documents and other documents. The data are recorded, classified, and summarized “(Understanding Business. Understanding Financial Information and Accounting)

Therefore, apart from sales documents, any other documents connected with financial transactions or cash flow within the Riordan Manufacturing Industries will serve as inputs into the accounting system of Riordan Manufacturing Inc .However, considering standard financial statements, Cash flow Statement can be used to track all the required information. This will identify the sources and Uses of cash within the company. Income Statement

(Revenue less Expenses gives profitability) and Balance Sheet (Assets and Liabilities) might not give the details of inflows and outflows of cash within the industry.

On the other hand Cash flow Statement will give the cash flow from operations investments and financing. That is , all the departments (Finance and Accounting ,Sales and Marketing ,Human Resources , Operations, Legal , Information Technology and Executives ) within Riordan Manufacturing Inc. will be connected to the accounting system from all the operating entities in Georgia , Michigan ,California , China and having the corporate office in San Jose .

Inventory control is an important part in the risk management systems for all companies. Riordan definitely falls within this banner as too, this important phase is needed in tracking inventory produced and on hand to do a number of tasks. Some of these things but not limited to are: janitorial, maintenance, manufacturing, distribution, and administrative. On the surface it might seem that there isn’t an urgent need to track these miscellaneous things carefully. This is quite to the contrary because it is these very things that can determine the profit or loss in a company and ultimately it’s overall profit and loss.

Some reports most specifically needed will be the monitoring monthly inventory waste. This report will track and determine product waste, spillage, and unwarranted use in the business. This will allow for a close look at which department uses what, how much and when they use these items. It will be a very closely monitored and targeted to manage write off expenses. By keeping a very good record (daily) and keeping inventory current you are able to target departments which seem to waste more than others and subsequently put plans in place to alleviate these losses in the future. This is many times an overlooked item in inventory control and management and by Riordan monitoring these items closely it can allow profits to rise.

Accounting Systems Summary

In summary, connecting these systems to accounting systems will become an extension of the overall profitability, marketability and tracking of all operations within the company. As stated previously, the day to day operations will need to be monitored and by incorporating the systems with accounting will clarify the validity of the reports about the functions of operations and other services within the company to create a plan of action and forecasts for the future.

Financial Analysis of Riordan

Riordan Incorporated has maintained effective operations through quality management in Finance and Accounting, Sales and Marketing, Human Resources, Operations, Legal and Information Technology. The purpose of this paper is to review and analyze both the income statement and balance sheet of Riordan Manufacturing Incorporated.

Analysis of Income Statement

The income statement, also known as the “profit and loss statement,” provides the financial performance of the business over a specific accounting period, and discloses information about revenues and expenses that are a direct result of the regular business operations. This information is important to investors when determining the profitability of a business such as Riordan Manufacturing. Important business decisions require important financial information which can be read and understood. Ratios are easily formed and understood regarding a business’ financial situation.

An important ratio from the income statement used by investors is the Profit Margin Ratio. This ratio is determined by subtracting the cost of goods sold from the total sales, and then divided by the total sales. With Riordan Manufacturing, the Profit Margin Ratio for 2004 and 2005 were 19% and 17% respectively. Although there was a slight decrease of 2% profitability, this indicates that the company has remained relatively constant in profitability and efficiency in operation. The sales have increased for Riordan, but the total profit has decreased. The increased costs are exceeding the sales increase. The company might look at the total costs and rein them in a little to keep the Profit Margin level and even increase it the following year.

Analysis of Balance Sheet

The balance sheet provides information about what the company owes and owns at a specific accounting period. For investors, the balance sheet lists the assets and liabilities and if the shareholder’s equity is needed to borrow for those liabilities. The assets must balance against the liabilities and shareholder’s equity. Two important financial ratios which reflect the working Capital and the financial risk of Riordan Manufacturing are the Current Ratio and Debt Ratio respectively.

The Current Ratio for Riordan Manufacturing is 2.09, and is calculated by dividing the current assets by the current liabilities. With the number greater than 1.0 this indicates that Riordan has sufficient assets to pay for the liabilities. In comparing the ratio from the previous year, Riordan posted a 2.42 current ratio which is better than the most recent but still helps keep Riordan in a secure financial position. Even though cash on hand decreased, products were still being sold and therefore attributes the increase in accounts receivable by $400,000.

The inventories which report more than half of the current assets indicate that, the company has enough stock to continue productions. The company did not defer income tax for the year while it holding to some prepaid expense. The reports further indicate that, the current asset with the property, plant, and equipment of the company showed an increase compared with the previous year .And generally there is increase in asset of the company compared with that of the previous year. It can also be seen that, the current liabilities and the total liabilities are less the current asset and the total current asset. This is good for the company because it shows that the company is viable in their management of their finances.

The Debt Ratio for Riordan Manufacturing is 36%. This indicates that the financial risk for lenders such as banks and investors is low enough for consideration. If Riordan Manufacturing is in a financial crisis the banks and lenders are likely to help bail out the business. In addition, the stockholders may invest more in Riordan Manufacturing in the hopes of better profit numbers by dollar-cost-averaging the investment stocks and purchasing more shares for working capital.

Summary

In summary, the Income Statement and Balance Sheet are important financial statements used by investors and lenders in determining risk. The two statements used in conjunction provide vital information of a company’s financial situation regarding profitability, debt management, and efficiency of operations. This paper reviewed and analyzed both the income statement and balance sheet of Riordan Manufacturing Incorporated.

References

_Accounting Software Portal._ Retrieved February 2, 2009, from http://www.accounting-software-portal.com/Accounting-Software/

_Riodan Mfg. Financial & Accounting – Overview._ (n.d.). Retrieved February 15, 2009, from Riodan Mfg. Financial & Accounting – Overview: https://ecampus.phoenix.edu/secure/aapd/CIST/VOP/Business/Riordan/Finance/RioFandA001.htm


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