Study of Arctic and Polaris

Paper Summary:

In this article, the writer looks at the financial activities and financial health of the companies Arctic and Polaris. The current ratios and quick test are used in order to evaluate the liquidity and the short-term solvability of the two companies. Further, the writer discusses the subject of retained earnings and taxation on retained earnings.
The writer concludes that both the companies have a healthy financial situation, with an obvious inclination for shareholder and equity financing rather than a financial leverage.

From the Paper:

"The solvency and debt management ratios will provide important information in terms of the financial leverage and the proportion of debt used by each of the two companies in their financial approach. The debt ratio and debt-to-equity ratios seem the best places to start, because this will show the amount of the total assets in each company financed by outside sources (debt). On the other hand, both companies have interesting situations in terms of debt usage for development and investment.
In the case of Arctic, the company is relying, in terms of long-term financing, almost exclusively on retained earnings. Retained earnings can be defined as earnings that are "retained by the company to be reinvested in its core business or to pay debt", basically, a form of not paying out dividend to the shareholders and reinvesting profit. Retained earnings amount for 65.1 % of total asset value, a similar proportion as the one in 2003."

Sample of Sources Used:

• Retained Earnings = 2 Taxes? Tax & Business Insights. Volume 4, Issue 4 - July/August 2002
• Corporation Retained Earnings. Form 1120 - US Corporation Income Tax Return.
• Defrancesco, Roccy. Rescuing Retained Earnings And Mitigating The Double Tax. National Underwriter. February 2006
• Why Owners Love Their Retained Earnings Account How to Handle it. The American Institute of Professional Bookkeepers. Volume 1: Issue 17
• How Corporations are Taxed. July 2004. Nolo.com.

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