financial analysis ratios assignment help

financial analysis ratios assignment help

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Type	Essay
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Description/Paper Instructions

financial analysis ratios assignment help

Description

Pick 2 companies that trade their stock in the stock market and are in the same industry, Retrieve their financial statements from their last annual reports.
Run all of the financial analysis ratios discussed in Chapter 3, as summarized on page 68 of the textbook.
Run the calculations for each ratio for each company side-by-side and group the ratios by type:
Liquidity; solvency; asset management; profitability; and market value.
Write up one paragraph for each category type, describing how one company’s ratios in that area are better than the other’s .
Finalize the paper with a recommendation as to which company would provide a better stock purchase investment and most importantly, WHY?
Take a look at this for hint:

68

TABLE 3.8 Common Financial Ratios

I.
Short-term solvency, or liquidity, ratios
II.
Long-term solvency, or financial leverage, ratios

Current ratio

=

Current assets
Current liabilities
Current ratio=Current assetsCurrent liabilities

Total debt ratio

=

Total assets ? Total assets
Current assets
Total debt ratio=Total assets ? Total assetsCurrent assets

Quick ratio

=

Current assets
?
Inventory
Current liabilities
Quick ratio=Current assets ? InventoryCurrent liabilities

Debt-equity ratio
=
Total debt/Total equity
Debt-equity ratio = Total debt/Total equity

Cash ratio

=

Cash
Current liabilities
Cash ratio=CashCurrent liabilities

Equity multiplier
=
Total assets/Total equity
Equity multiplier = Total assets/Total equity

Net working capital to total assets

=

Net working capital
Total assets
Net working capital to total assets=Net working capitalTotal assets

Long-term debt ratio

=

Long-term debt
Long-term debt
+
Total equity
Long-term debt ratio=Long-term debtLong-term debt +Total equity

Interval measure

=

Current assets
Average daily operating costs
Interval measure=Current assetsAverage daily operating costs

Times interest earned ratio

=

EBIT
Interest
Times interest earned ratio=EBITInterest

Cash coverage ratio

=

EBIT
+
Depreciation
Interest
Cash coverage ratio=EBIT + DepreciationInterest

III.
Asset management, or turnover, ratios
IV.
Profitability ratios

Inventory turnover

=

Cost of goods sold
Inventory
Inventory turnover=Cost of goods soldInventory

Profit margin

=

Net income
Sales
Profit margin=Net incomeSales

Day
’
s sales in inventory

=

365 days
Inventory turnover
Day’s sales in inventory=365 daysInventory turnover

Return on assets (ROA)

=

Net income
Total assets
Return on assets (ROA)=Net incomeTotal assets

Receivables turnover

=

Sales
Accounts receivable
Receivables turnover=SalesAccounts receivable

Return on equity (ROE)

=

Net income
Total equity
Return on equity (ROE)=Net incomeTotal equity

Day
’
s sales in receivables

=

365 days
Receivables turnover
Day’s sales in receivables=365 daysReceivables turnover

ROE
=
Net income
Sales
×
Sales
Assets
×
Assets
Equity
ROE=Net incomeSales×SalesAssets×AssetsEquity
*

NWC turnover

=

Sales
NWC
NWC turnover=SalesNWC

V.
Market value ratios

Fixed asset turnover

=

Sales
Net fixed assets
Fixed asset turnover=SalesNet fixed assets

Price-earnings ratio

=

Price per share
Earnings per share
Price-earnings ratio=Price per shareEarnings per share

Total asset turnover

=

Sales
Total assets
Total asset turnover=SalesTotal assets

PEG ratio

=

Price-earnings ratio
Earnings growth rate (%)
PEG ratio=Price-earnings ratioEarnings growth rate (%)

Price-sales ratio

=

Price per share
Sales per share
Price-sales ratio=Price per shareSales per share

Market-to-book-ratio

=

Market value per share
Book value per share
Market-to-book-ratio=Market value per shareBook value per share

Tobiny
’
s Q ratio

=

Market value of assets
Replacement cost of assets
Tobiny’s Q ratio=Market value of assetsReplacement cost of assets

Enterprise value-EBITDA ratio

=

Enterprise value
EBITDA
Enterprise value-EBITDA ratio=Enterprise valueEBITDA

*This ROE decomposition is covered in Section 3.4.

Enterprise value is frequently used to calculate the EBITDA ratio (or enterprise multiple):

EBITDA ratio
=
Enterprise value/EBITDA
EBITDA ratio = Enterprise value/EBITDA
3.25

This ratio is similar in spirit to the PE ratio, but it relates the value of all the operating assets (the enterprise value) to a measure of the operating cash flow generated by those assets (EBITDA).

CONCLUSION

This completes our definitions of some common ratios. We could tell you about more of them, but these are enough for now. We’ll go on to discuss some ways of using these ratios instead of just how to calculate them. Table 3.8 summarizes the ratios we’ve discussed.

financial analysis ratios assignment help

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