Word document of 500-800 words with attached Excel spreadsheet showing calculations
Locate a publicly traded U.S. company of your choice. Then, calculate the following ratios for the company for 2012 and 2013:
Liquidity Ratios
Current ratio [current assets / current liabilities]
Quick ratio [(current assets – inventory) / current liabilities]
Asset Turnover Ratios
Collection period [accounts receivable / average daily sales]
Inventory turnover [cost of goods sold / ending inventory]
Fixed asset turnover [sales / net fixed assets]
Financial Leverage Ratios
Debt-to-asset ratio [total liabilities / total assets]
Debt-to-equity ratio [total liabilities / total stockholders’ equity]
Times-interest-earned (TIE) ratio [EBIT / interest]
Profitability Ratios
Net profit margin [net income / sales]
Return on assets (ROA) [net income / total assets]
Return on equity (ROE) [net income / total stockholders’ equity]
Market-Based Ratios
Price-to-earnings (P/E) ratio [stock price / earnings per share]
Price-to-book (P/B) ratio [market value of common stock / total stockholders’ equity]
You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2012 to 2013, why do you think that it increased? Is it a good or bad sign that the ratio increased? Please explain.
If a ratio decreased from 2012 to 2013, why do you think that it decreased? Is it a good or bad sign that the ratio decreased? Please explain.
If a ratio was unchanged from 2012 to 2013, why do you think that it was unchanged? Is it a good or bad sign that the ratio was unchanged? Please explain.
Objective: |
· Calculate and analyze financial ratios, make recommendations for improvement in financial performance. · Analyze financial statements, develop cash flow analysis, and pro forma statements. · Use effective communication, team and problem-solving skills to collaborate on a project. |
INSTRUCTOR COMMENTS:
Ratio Analysis
Perform a trend analysis on these ratios for two years: this means comparing the changes from 2012 to 2013 (for example). Do this for each ratio and discuss the changes that have occurred: for example, has the gross profit margin increased or decreased? By what percentage? And provide an explanation as to why you feel it has changed. Perform this for each of the ratios you present
Provide a comprehensive analysis of each ratio! You are required to provide a discussion on the changes in your ratios. I don’t expect you to have a thorough understanding of why the ratios changed, but you are free to speculate. For example, if you see gross profit margin decreasing but sales increasing, look at cost of goods sold, or cost of revenue. Cost of goods sold is probably increasing at a greater percentage than sales, thus the gross profit margin is decreasing even though sales and gross profits are increasing.
Make sure you show your calculations and properly label your data so the reader knows what the data represents; if you simply state the ratio without the accompanying data, your instructor does not know that you understand how to calculate these ratios. This is an example of demonstrating your understanding of gross profit margin;
Gross profit margin was 20% for 2012.
Gross profit / Sales
$20,000 / $100,000 = 0.20 x 100 = 20%
You may show your calculation in your WORD document; you don’t have to include an Excel spreadsheet. If you DO include an Excel spreadsheet, please ensure your data is properly formatted!
Use correct units of measure! Are you expressing your data as a ratio (this uses no unit of measure; ie Current Ratio is 2.0) or as a percentage (ie; Gross profit margin is 20.3%) If you don’t use correct units of measure, you will lose points
Excel is not required! You may utilize a Word document to complete this assignment but you do need to show your calculations (as in the example of gross profit margin above)
Be sure to properly reference your work providing in text citations on all data and information that is not common knowledge. References and citations must be properly APA formatted!
Do NOT copy and paste any information from your sources! ALL work must be IN YOUR OWN WORDS! Keep an eye on your OV score, if it’s over 15%, please go back and check to ensure you are properly paraphrasing! You MAY copy and paste financial statements in order for you to conduct your financial analysis!
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