...Ratios tell s a story Airline—Data 10 This set of date has a extremely high dividend payout ratio 332.6% although it has a very low ROS 0.1% and ROE 0.8%. Under this kind of situation this company could still pay dividends over three times to net income, meaning it is a company with strong financial background and enough retained earnings from previous years. An Airline company would normally has enough money to pay dividends even it is not financially successful in this year; and to some extent is has to pay shareholders enough dividends to maintain continuous investment since Airline requires a lot of capital to run every year. At the same time it has only 0.1% cash but 25.1% account receivables. When people buy tickets they normally pay online by using credit card, so an airline company would have very little cash. Railroad—Data 4 There is no inventory in this set of data. Railroad is a kind of company which has no inventory since it is just there and no inventory is needed. Also, cash has a high percentage 31.8% among all current assets. People driving pass one railroad would normally pay cash instead of using card. Pharmaceutical—Data 7 This set of data has the highest cash percentage among all the sets, 46.1%. A pharmaceutical company is able to have great cash flow since it does not always need a lot of capital to keep the day-to-day running. Because a pharmaceutical company has to do a lot of research and experiment, it will have more research & development...
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...UV1765 RATIOS TELL A STORY—2005 Financial results vary between companies for a number of reasons. One reason for the variation can be traced to the characteristics of the industries in which the companies operate. For example, some industries require large investments in property, plant, and equipment, while others require very little. In some industries, the product-pricing structure allows companies to earn significant profits per sales dollar, while in other industries the product-pricing structure imposes a much lower profit margin. In most low-margin industries, however, companies often experience a relatively high volume of product throughput in their businesses. A number of industries are also characterized by lenient credit terms, while others sell for cash only. A second reason for some of the variation in financial results between companies is the result of management policy. Some companies reduce their manufacturing capacity to match more closely their immediate sales prospects, while others carry excess capacity to be prepared for future expansion. Also, some companies finance their assets with borrowed funds, while others avoid that leverage and finance their assets with owners’ equity. Of course, one other reason for some of the variation in reported results between companies is the differing competencies of management. Given the same industry characteristics and the same management policies, different companies may report different financial results simply because...
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...Baikang Yuan Professor Gary Osmond FINA 3301 Section 07 Assignment: Ratios Tell A Story 09/24/2015 Ratios Tell A Story Commercial banking, tax preparation and diversified financial services, and computer software development are three industries that have no inventory. So they match No.2, No.4 and No.11. Since developing computer software needs more development expense, No.2 has the highest research and development expense ratio, thus it matches computer software development. Commercial banking has a lot of loans and deposits. No.11 has the highest account receivable and the highest current liabilities so that it matches commercial banking. Then, No.4 matches tax preparation and diversified financial services. Wholesale food distribution has high inventory and its ROS&ROA should be lower than other industries. No.10 matches it best because it has the highest inventory and very low ROS and ROA. Pharmaceutical needs very high research and development expense. Also, we know that pharmacy is a really high-profit business, so its ROS should be very high. No.9 matches it because it has the highest research and development ratio and the highest ROS. Electric utility needs a great number of equipment. No.5 matches it because it has the highest net property, plant and equipment. No.12 matches computer and office equipment production and servicing because it has the second highest net property, plant and equipment. No.6 matches supermarket chain because it has the...
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...D O N O T C O PY Balance Sheet Detective 05/2011-5791 This case was written by Elizabeth Demers, Assistant Professor of Accounting and Control at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2011 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. Exhibit 1 shows the common-size, fiscal year 2005 balance sheets of 9 companies operating in different industries and headquartered in various countries, as described below. Use your economic intuition and the financial information cues provided in the common-size balance sheets to match the companies and industries described below with those depicted in the exhibit. O PY EDF (France) Electricité de France (EDF) is a large French utility company that was recently privatized via an initial public offering. The company's principal activity is the generation, transmission, distribution, import and export of electricity and other forms of energy. The Group has operations in France, United Kingdom, Spain, Belgium, Switzerland, Germany, Poland, Italy, Slovakia, Hungary, US, Mexico, Morocco, China, Brazil, Ivory Coast, Laos, Vietnam...
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...MGMT301 Hyeonseok Kim 11175120 Roger Yu’s article in USA TODAY has five key concepts. BlackBerry hired a new CEO, Jim Basillie to pursue a new business strategy. The company, RIM (Research In Motion) makers of BlackBerry were at one time the leaders of the smartphone market. In 2011 BlackBerry owned 11.1% of the market, Apple had the second largest share with 18.2% of the market, and with Android leading at 49%. BlackBerry’s plans to launch the playbook two and the new operating system in the coming year. Despite their efforts to change the company, many expertises argue there is no room for a new operating system in the smartphone market, especially with the release of Microsoft’s Windows 7 phone. This article is related to our discussion about leadership in our class. The company, BlackBerry is receiving new leadership who faces the challenge of competing in the smartphone market. The announcement by Jim Balsillie, the new CEO of RIM is related with leadership, especially visionary leadership. The leader with a vision is better equipped to handle challenges they face. Although the new CEO of the company is not pushing forward to radically change the business he acknowledges their business is falling behind in smartphone competition and has a new plan to survive the challenge. Vision provides where to go and a great control over the...
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...Some industries have differences strategy about the product pricing, profit margin, and rate of product throughput, while in other industries adjust their capacity to match with company’s plan for future. The case also provides examples of company’s policy, some companies borrow fund, and others avoid that. That is reflected all in financial results. Analysis: Airline: 7 Automobile Manufacturing: 8 Pharmaceutical: 9 Commercial Banking: 11 Computer and office equipment manufacturing: 12 Discount general-merchandise retail: 13 Electric utility: 5 Fast Food: 1 Wholesale food distribution: 10 Supermarket: 6 Internet retail: 3 Specialized staffing services: 4 Software development: 2 I pick two industry with the highest R&D ratio are pharmaceutical and software development. The one with no inventory is software development as number 2 and pharmaceutical matches with number 9. Commercial banking matches number 11 because it will have the highest current liabilities as well as the receivables collection. I matched two industries with the same receivables collection is 23 are Internet retail and electric utility, and the industry has higher total current assets is Electric utility as number 5. So, internet retail matches with number 3. Fast food, Wholesale food distribution, and Supermarket are three of the industry has the lowest receivables collection. The industry with the highest current asset is super market and marked number 6. The second highest current...
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...2 is a Computer software development industry due to high R&D cost and inventory turnover is NA.Since in a Sofware development industry R&D is high this satisfies it. 12 is a fast food industry as Inventory turnover is high as well as ROE and ROA which suggests that Assets is low.Since Fast foods have typically have high turnover to prevent spoilage No 12 satisfies it. Since only 2,7,8,9, have R&D cost they must be between Pharmaceutical ,railroad,Electrical Utlility and Software development respectively. Since in Wireless Communications Industry typically bills are paid on a monthly basis which means it must have receivable collection of around 30 days. No 5 satisfies it. It also doesn't have R&D cost and Inventory Turnover. No 10 is a grocery as the average inventory turnover for grocery is around 25.Also it R&D cost is N/A No 8 is a Pharma industry as it has high gross margin and R&D. It also has high ROS and ROA respectively .Pharma Industry has high R&D as profits earned on Sales is high. Internet Retailing has to be between 1 and 6 as their receivable collection is generally low.Since 1 has better inventory turnover than 6 ,1 has to be Internet Retailing. 7 has to be a Electrical Utility as it normally has less R&D involved than Software Development and Pharmaceutical respectively.This leaves us with railroad for 9 as it has huge assets so it will have less Asset turnover when compare to electrical utility. No 11 is Commercial banking...
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...Ratio analysis is a means of making an analysis of a company’s financial statements. There are many different ways to go about this analysis that take into account different factors such as year to year, company to company and also the economies effect on the company. Different kinds of analyses are profitability ratios, liquidity ratios, solvency ratios, measures of managerial effectiveness, and stock market ratios. The most important of the ratios would have to be the profitability ratios. This ratio shows how profitable a company is. This is very helpful information from the stakeholders to the stockholders. Some examples in how these rations are used in the daily decision making process at different companies is they can show one year to a past year and then the company can take into account some other factors such as sales, employees, or even different times of the year to see how the numbers went up or went down. These analyses can also compare two companies that sell the same or almost the same kind of products and tell the company doing the analysis if there are any ways to improve or streamline some of their business practices to make more profit. Liquidity ratios tell a company how capable they are to pay off debts and how fast they can pay back creditors. Profitability ratios tell a company how much of a profit they are taking to the bank. Solvency ratios tell a company shows debts and investments that a company has. The limitations of ratio analysis are that the...
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...Value Line Publishing, October 2002 1. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. 2. How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiore’s estimates are required to drive the 2002 return-on-capital estimate below Home Depot’s cost-of-capital estimate of 12.3 percent? Look specifically at gross margin, cash operating expenses, receivable turnover, inventory turnover, and P&E turnover. What effect does sales growth have on return on capital? Explain your findings. 3. Do you agree with Galeotafiore’s forecast for Home Depot? How would you adjust it? 4. How would your forecast assumptions differ for Lowe’s? Complete and recommend a five-year Lowe’s forecast to Galeotafiore. 5. What do the financial ratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. 6. How sensitive is return on capital to the forecast assumptions in case Exhibit 8? What independent changes in Carrie Galeotafiore’s estimates are required to drive the 2002 return-on-capital estimate below Home Depot’s cost-of-capital estimate of 12.3 percent? Look specifically at gross margin, cash operating...
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...BUS350: Principles of Finance August 20, 2015 Choose one of the ratios presented in the readings and apply research material to the discussion of that ratio. Businesses come in different sizes with different growth capacities. It would be difficult to compare financial statements of two companies, in the same industry, that are of varied proportions. Financial ratios allow a more simplified calculation of measure to compare these business entities. “Financial ratios are relationships determined from a firm’s financial information and used for comparison purposes” . There are several financial ratio methodologies that are used for interpretation. To name one category, short-term solvencies are calculations that measures a company’s short run, or current assets. “As the name suggests, short-term solvency ratios as a group are intended to provide information about a firm’s liquidity (liquidity measures). The primary concern is the firm’s ability to pay its bills over the short run without due stress” (pg. 57). Some of the short-term solvencies are: Current Ratio, Quick Ratio, and Liquidity Ratios. When a business requires cash quickly, a creditor would be interested in the organization’s current ratio. The current ratio measures the company’s sense of the efficiency in its operating cycle or its ability to turn its product into cash, such as the inventory. “The current ratio is mainly used to give an idea of the company's ability to pay back its liabilities...
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...of financial leverage, which is important because debt can increase or decrease returns to shareholders. Financial leverage is usually measured by the ratio of long-term debt to total long-term capital. Oracles long-term debt ratio for 2014 is 33%, an increase from 29% in 2013. This number tells us that for every dollar in the form of long-term capital, 33 cents is in the form of debt. This measure, however, ignores Oracle’s short-term debt. To take short-term debt into account we measure its total debt ratio, in this case Oracle’s total debt ratio is 47%. Ultimately, these numbers tell us that Oracle is financed 47% with long-term and short-term debt and 53% with equity. We want equity here to be higher than debt since the less money the company borrows, the less interest it pays. Next, we take a look at Oracle’s liquidity ratios. Liquid assets can be converted into cash quickly, which is why it is important to measure to see how quickly a company can bring money together. The current ratio is simply the ratio of current assets to current liabilities. For Oracle, the current ratio is 3.35. This tells us that Oracle has $3.35 in current assets for every dollar in current liabilities. In order to account only for Oracle’s most liquid assets, we use the cash ratio which uses only cash and marketable securities. Oracle’s cash ratio is 1.23. One might...
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...other words we can say that the liabilities of the company are increasing rapidly as compared to assets. Higher is good for the company. Negative working capital shows that the liabilities exceed assets which are not good for the company. It happened in 2012. * Current ratio tells that whether the company can meet its short term obligations from its assets or not. Near to 1, or greater than 1 is good for the company. Current ratio of Ittehad Chemicals has decreased from 1.14 to 0.96 (2008-2012), which is not a healthy sign. This Decline in current ratio means that current liabilities are increasing more than current assets, which shows that the company’s current assets are stable or decreasing over the year. * Cash ratio tells that’s that how much the company has invested and what is the proportion of cash from its current assets. Higher is better. Cash ratio of Ittehad Chemical is decreasing over time from 4.4 to 0.88, but their was a good change in 2011 which was 4.8. highest among all the years. This means that in 2008 and 2011, cash ratio was higher. This shows that the short term investments and cash was higher which resulted in increase of cash ratio in 2008 and 2011. * Asset test ratio shows that whether the company is able to pay off its liabilities from its most liquid asset or not. Liquid means that the asses should be quickly convertible. It shows the proportion of liquid assets from its...
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...financial ratios from your text, course materials, and/or Web resources. Answer the following questions: What do they tell you about a firm? Why is it important for a bank to understand these financial ratios? Why is it important for an investor to understand these financial ratios? Financial ratios are important when it comes to understanding the financial health of a company. My colleagues and I work for a financial service and are discussing the merits of the various financial ratios. We are to identify for financial ratios and what they tell us about it for and why it is important for banks to understand these financial ratios as well as the importance it has for an investor to understand these financial ratios. The company that I will be discussing about is the Coca-Cola Company. I browsed through the Coca-Cola website and also the "investors" portion of a website and looked at through their financial statements in 2008. These included the income statement, balance sheet and cash flow statement for the 2006 fiscal year. When conducting the market value ratio for Coca-Cola, it turns out that the P.E. ratio is 22.02 and the market to book value is 6.61. The market value ratio is a measure of how expensive the stock is (Brooks, 2010). The higher the price earnings ratio, the more we are paying for each dollar of earnings. The higher the market to book value, the more we are paying for each dollar of equity we have on the balance sheet. With the price earnings ratio at 22...
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...Case Analysis Summary This class requires a clear understanding of how to prepare for a class discussion on assigned cases. It’s important to learn how to do this to be successful not only for this class, but also if you want to become a successful manager. I should be able to come up with a good argument for what I believe is the correct plan of action that needs to take place for whatever managerial situation. I hope to be able to effectively participate in future class discussion about cases after sufficiently studying the guide for case analysis. First, I will summarize “Preparing a Case for Class Discussion,” followed by a summary of the ratios from Table 1, and lastly, I will summarize the “Ten Commandments” from Table 2. To prepare for a case used in class discussion, there will be a couple of steps recommended that I follow to help create a successful reflection of the material. First, it is recommended that I quickly read over the material to grasp the basic concept. This helps me understand what kind of situation I will be dealing with while doing the case analysis. It also allows me to know what to start looking for when I read the material in detail. Next, I should carefully read the case and make sure I completely cover every aspect of the situation. During this process I should start to look over questions the instructor may have provided to see if I can begin to answer any of them. At this point, I want to be comfortable with all the facts and be able to talk...
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...annual report our consulting team analyzed data provided by accounting department and calculated the following ratios. As Current Ratio we have 1.53 : 1. For Acid-Test (Quick) Ratio we have .73 : 1. As Receivable Turnover we have 7.9 times. As Inventory Turnover we have 3.04 times. The previous ratios relates to Liquidity Ratios. As we mentioned above Current Ratio is 1.53, which is good but should be better if this ratio could be 2:1, which indicates company has good solvency. As we both know a healthy quick ratio should be between 0.5 and 1, where company is good so far with 0.73. Receivable turnover ratio tells us that company collects 1.5 times in a month for its accounts receivable. Inventory turnover tells us the that company’s inventory is sold and replaced in a period of 120 days. The best way to know if the above liquidity ratios are good or not, is by comparing them with competitor’s ratios. According to our principal competitor’s annual report, which is Nike, Adidas manage almost similar ratios besides current ratio 2.9, quick ratio 1.8, and inventory turn over 4.2. By compare them we notice Adidas is experiencing some difficulties to pay off its short-term debts rather than Nike. Profitability ratios composed from Asset Turnover 1.21 time, Profit Margin 5%, Return on Assets 6%, and Return on Common Stock Equity 13.5%. Asset turnover ratio tells us company’s ability to generate earnings, and competitor makes 1.7. In addition, Nike’s Profit Margin is 10...
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