The originality report should indicate less than 10%. It should be written using APA formatting, 12 pt font, double-spaced, with a cover page, reference page of at least 3 references including the annual report, and the body at least 2.5 pages not counting an abstract or the reference page. You need to go to company website and find annual report for financial statements and other information there. Identify any current problems. Citations should be included in the text tying to the references at the end.
Choose a company for your paper and get it approved by the professor so no two students do the same company. Paper should be 12 pt. double spaced with introduction of the company, its product and industry.
Calculate and compare key financial ratios to industry average in a table (listed in questions below) highlighting problems areas. Identify and give recommendations for problem areas and discuss risk. Use tables and graphics. Proofread. Use similarity report to correct errors before the due date. Don’t do Wal-mart, Coca-Cola, or Apple. There is just so much printed up on them. (You may find these already calculated for your company and their industry’s average but be sure to cite the sources.)
The case will be evaluated on demonstrating an understanding of the chapter readings, as well as applying financial concepts to your research topic. The paper should be proofread for grammar and spelling errors. All papers should be well-written in a professional business style using APA format (6th Ed.). Papers not in APA format and Microsoft Word processed will not be accepted and a reduction in grade will apply.
Why are ratios useful? What are the five major categories of ratios?
Calculate the last annual report’s financials for current and quick ratios based on the balance sheet and income statement data. What can you say about the company’s liquidity positions? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the company’s liquidity ratios? Explain your answer.
Current ratio = Current assets/Current liabilities
Quick ratio = (Current assets – Inventories)/Current liabilities
3. Calculate the most recent inventory turnover, days sales outstanding (DSO), days to pay, fixed assets turnover, and total assets turnover. How does your company’s utilization of assets stack up against other firms in the industry?
Inventory turnover= Cost of Goods Sold/Inventory
Days to pay= Account Payables/ (Cost of Goods Sold/365)
DSO=Average collection period=Account Receivables/(Credit Sales/365)
Fixed assets turnover= Sales/Net fixed assets
Total assets turnover= Sales/Total assets
4. Calculate the most recent debt-to-capital and times-interest-earned ratios. How does your company compare with the industry with respect to financial leverage? What can you conclude from these ratios?
Debt-to-capital ratio = Total debt/Total invested capital
TIE = EBIT/Interest
5. Calculate the most recent operating margin, profit margin, return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC). What can you say about these ratios?
Operating margin= EBIT/Sales
Profit margin= Net income/Sales
ROA= Net income/Total assets
ROE= Net income/Common equity
ROIC= EBIT(1 – T)/Total invested capital
6. Using the most recent annual report, calculate the most recent price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
EPS= Net income/Shares outstanding
Price/Earnings = Price per share/Earnings per share
Check: Price = EPS ´ P/E
BVPS= Common equity/Shares outstanding
Market/Book= Market price per share/Book value per share
7. Use the DuPont equation to provide a summary and overview of the financial condition for the last annual report. What are the firm’s major strengths and weaknesses?
DuPont equation= Profit Margin x Asset Turnover
8. How would an improvement in the DSO tend to affect the stock price? For example, if the company could improve its collection procedures and thereby lower its DSO to the industry average without affecting sales, how would that change “ripple through” the financial statements and influence the stock price? Accounts receivable, Other current assets, Net fixed assets, Total assets Current liabilities?
9. Does it appear that inventories could be adjusted? If so, how should that adjustment affect their profitability and stock price?
10. What are some potential problems and limitations of financial ratio analysis?
11. What are some qualitative factors that analysts should consider when evaluating a company’s likely future financial performance?
Set your table up in your paper like the attached worksheet, then discuss the points in paragraph form.
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