Financial ratio analysis
-3— Financial ratio analysis.
In this part of the project you will complete ratio analysis of THE COMPANY. Please remember that you are the financial analyst of THE COMPANY and should prepare the report to be read by the chairman (CEO) of THE COMPANY. The ratio analysis should be completed from the point of view of THE COMPANY’s the management.
The chairman of THE COMPANY is especially concerned about the following groups of ratios:
· Liquidity (current ratio, quick ratio)
· Operating performance ratio (Days of Sales in Inventory, Days of Sales Outstanding, Days of Payables Outstanding), Receivables Turnover, Inventory Turnover, Fixed Assets Turnover, Total Assets Turnover)
· Profitability ratios (Gross Profit Margin, Operating Profit Margin, Net Profit Margin)
· Return on Investment ratios: (ROA, ROE)
These ratios are available on www.morningstar.com > Company’s page – under Financials and under Operating Performance
You can find financial ratios for the company for the last 1-5 years in the Internet or calculate them. If you use published ratios you must indicate that and cite their source.
a) Present the ratios as the table(s) in your project. Create graphs for some ratios on your choice over three years to show trends.
b) Write 2 pages (or more) of analysis of the ratio results that you found. In your analysis you should answer the following questions:
· How liquid is the company?
· Is management generating a substantial profit on the company’s assets?
· If the management of the company would like to improve the company’s financial performance, what should the management of THE COMPANY do?