Reference no: EM131251097

Exercise Two Handout
Liquidity Ratios

1) Current Ratio = Current Assets / Current Liabilities

2) Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Leverage Ratios
1) Long-term Debt/Equity Ratio = Long-term Debt / Equity

2) Total Debt/Equity Ratio = (Short-term Debts + Long-term Debts) / Equity

Profitability Ratios
1) Net Profit Margin = Net Profit after Taxation / Sales

2) Operating Profit Margin = Operating Profit / Sales

3) Return on Equity = Net Profit after Taxation / Equity

4) Return on Total Assets = Net Profit after Taxation / Total Assets

5) Return on Capital Employed = Net Profit after Taxation / (Total Assets - Current Liabilities)

Efficiency Ratios
1) Inventory Turnover = Sales / Inventory

2) Assets Turnover = Sales / Total Assets

Market Value Ratios
1) Price Earnings Ratio = Current Stock Price / Earnings Per Share (EPS)

Other Fundamental Indicators
1) Earnings Per Share (EPS) = Net Profit after Taxation / Issued Common Shares

2) Net Asset Value (NAV) = (Total Assets -Total Liabilities) / Issued Common Shares

Project Milestone
Overview:The final project for this course is the creation of a financial statement analysis. A business's financial statements offer important insights into its performance and financial health that help guide internal managers' and external investors' resource allocations. For a financial analyst, being able to accurately read and interpret these statements is a critical tool in making sound recommendations to clients or company executives. Analysts also need to understand how the limitations of these statements and the legal and ethical obligations that underpin them impact business decisions.

Prompt: In this milestone, you will submit a draft of a portion of the analysis step (Part II), Section C: Key Ratios. You will calculate the ratios for the company selected in Milestone One and show your calculations for each indicator in an appendix. Specifically, you must calculate and explain profitability, liquidity, debt, operating performance, cash flow, and investment valuation.

Specifically, the following critical elementsmust be addressed:
II. Analysis. Use this section to present your findings, based on quantitative and qualitative analysis of the financial statements. Include a copy of the financial statements and any ratios or analysis in an appendix as support for your text. In particular, this section should cover:

c) Key Ratios. Use this section to discuss key performance indicators (ratios). Be sure to show your calculations for each indicator in an appendix. Specifically, you must look at:

1. Profitability: Accurately present and explain the significance of the profit margin, return on assets, return on equity, and return on capital ratios for this company. In other words, what are the ratio values for this company, and what do they suggest for informing decisions to buy or sell company shares or change management procedures?

2. Liquidity: Accurately present and explain the significance of the current, quick, and cash ratios for this company. In other words, what are the ratio values for this company, and what do they suggest for informing decisions to buy or sell company shares or change management procedures?

3. Debt: Accurately present and explain the significance of debt, debt-equity, and interest coverage ratios for this company. In other words, what are the ratio values for the company, and what do they suggest for informing decisions to buy or sell company shares or change management procedures?

4. Operating performance: Accurately present and explain the significance of the fixed-asset turnover ratio for this company. In other words, what is the ratio value for this company, and what does it suggest for informing decisions to buy or sell company shares or change management procedures?

5. Cash flow: Accurately present and explain the significance of the dividends payout ratio for this company. In other words, what is the ratio value for this company, and what does it suggest for informing decisions to buy or sell company shares or change management procedures?

6. Investment valuation: Accurately present and explain the significance of the price/book value, price/earnings, price/sales, and dividend yield ratios for this company. In other words, what are the ratio values for this company, and what do they suggest for informing decisions to buy or sell company shares or change management procedures?

Guidelines for Submission: Submit a 1-2 page Microsoft Word document explaining the significance of each of your calculations. This document should be double-spaced, using12-point Times New Roman font, one-inch margins, and sources cited in APA format. Your calculations should be submitted as an appendix using an Excel spreadsheet.