Financial Statement Analysis

Directions

This Assessment is separated into four parts. In Part 1 of this Assessment, you will begin by researching and summarizing four of the benefits of financial analysis and indicating which is the most significant to you. In Part 2  of this Assessment, you will define and properly classify the financial classifications and ratios listed below.  In Part 3 of this Assessment, you will calculate and explain the significance of the Liquidity, Profitability, and Market Value financial ratios, and provide a year to year comparison of assessed financial trends. In Part 4 of this Assessment, you will compose an analytical essay in a minimum of 350 words reporting the one financial measurement trend you find to be most significant.

Use the Word template provided to complete your Assessment.
Questions

Part 1.

Locate and read the following article:

Faello, J. (2015). Understanding the limitations of financial ratios. Academy of Accounting & Financial Studies Journal, 19(3), 75-85.

Refer to pages 75 and 76 of Faellos (2015) work. In four separate paragraphs (one for each question), summarize four of the benefits of financial analysis mentioned in the journal article. In one paragraph, describe which one of the four benefits you consider to be most significant.

Review the following financial data, then answer the questions below.

Income Statement and Balance Sheet
Company X Income Statement

FYE 2014 and 2015

Period Ending

31-Jan-15

31-Jan-14

Total Sales

$        485,651,000

$        476,294,000

Cost of Goods

            365,086,000

            358,069,000

Gross Profit

            120,565,000

            118,225,000

Selling General and Administrative

            93,418,000

            91,353,000

Operating Profit

            27,147,000

            26,872,000

Total Other Income/Expenses Net

            113,000

            119,000

Earnings Before Interest And Taxes

            27,034,000

            26,753,000

Interest Expense

            2,461,000

            2,335,000

Income Before Tax

            24,573,000

            24,418,000

Income Tax Expense

            7,985,000

            8,105,000

Net Income From Continuing Ops

            16,588,000

            16,313,000

Discontinued Operations

            285,000

            144,000

Net Income (Net Profit)

$  _    16,303,000

$  _    16,169,000

14,000,000 shares outstanding

Market Share price per share

$                    10.00

$                    9.00

Company X Balance Sheet

FYE 2014 and 2015

Period Ending

31-Jan-15

31-Jan-14

Assets

Current Assets

Cash and Cash Equivalents

$        9,135,000

$        7,281,000

Net Receivables

6,778,000

6,677,000

Inventory

45,141,000

44,858,000

Other Current Assets

2,224,000

2,369,000

Total Current Assets

63,278,000

61,185,000

Property Plant and Equipment

116,655,000

117,907,000

Goodwill

18,102,000

19,510,000

Other Assets

5,671,000

6,149,000

Total Assets

203,706,000

204,751,000

Liabilities

Current Liabilities

Accounts Payable

58,583,000

57,174,000

Short/Current Long Term Debt

6,689,000

12,082,000

Other Current Liabilities

– 

89,000

Total Current Liabilities

65,272,000

69,345,000

Long Term Debt

43,692,000

44,559,000

Deferred Long Term Liability Charges

8,805,000

8,017,000

Minority Interest

4,543,000

5,084,000

Total Liabilities

122,312,000

127,005,000

Miscellaneous Stocks Options Warrants

0

0

Common Stock

323,000

323,000

Retained Earnings

85,777,000

76,566,000

Capital Surplus

2,462,000

2,362,000

Other Stockholders Equity

-7,168,000

-1,505,000

Total Stockholders Equity

81,394,000

77,746,000

Total  Liabilities +  Stockholders Equity

$        203,706,000

$        204,751,000

Number of Shares Outstanding

14,000,000

14,000,000

Market Share price per share

$                    10.00

$                    9.00

Part 2.

Define the ten financial ratios below.

Financial Ratios:

Current Ratio
Quick Ratio
Accounts Receivable Turnover as a multiple
Accounts Payable Turnover as a multiple
Return on Equity as a percent
Return on Assets as a percent
Operating Profit Margin as a percent
Net Profit (after tax) Margin as a percent
Earnings per Share as a dollar value
Price to Earnings as a multiple
Part 3. Classify, calculate, and assess a) Liquidity and Turnover management of Current Assets and Liabilities, b) Profitability, and c) Market Value ratios. Please note outcomes as a multiple, percent, or dollar value.

Liquidity and Turnover management of Current Assets and Liabilities
In this section, properly classify which of the above (from Part 2) are the liquidity and turnover ratios. Then, using the data from the Income Statement and Balance Sheet, provide the correct calculation of these four liquidity and turnover ratios and an assessment of the companys ability to maintain liquidity and the management of current assets and current liabilities.

Include the proper assessment of outcomes as positive or negative trends when all four ratio outcomes are factored as a group.

b. Profitability

In this section, properly classify which of the above (from Part 2) are the profitability ratios. Then, using the data from the Income Statement and Balance Sheet, provide the correct calculation of these four profitability ratios and an assessment of the companys ability to maintain if not improve profitability based on the amounts of Equity, Assets, and  levels of profits from Sales. Include the proper assessment of outcomes as positive or negative trends when all four ratio outcomes are factored as a group.

c. Market Value

In this section, use the price per share data, the Income Statement and Balance Sheet to provide the correct calculation these two Market Value ratios; Earnings per Share (EPS) and Price to Earnings (P/E) ratio. 

Given the changes of EPS from one year to the next, what is your assessment of the company’s net income theoretically available for payment for investors holding common stock? As an investor to what extent are you more or less confident of the companys ability to add value to your ownership position?

Based on the companys P/E ratio changes from one year to the next what might this tell us about either investor sentiments of future profits, or stock price/value given the ability to generate income at a set price? 

Part 4. Overall Analysis

In this section, you will compose an analytical essay in a minimum of 350 words. Based on the above, provide a proper assessment of the companys most significant negative trend and what corrective actions can be taken to improve results. You should search the Library, your textbook, and the internet using a variety of criteria to find academic sources that will support your assessment of the trends and actions that could be taken.

Please address items 1 and 2 as the preliminary portion of your assignment.  And build on that commentary as the body of your overall assessment.

1. The most significant concern is

2. The quantitative aspect of this assessment of negative trends is based upon  ratios and comparative data

Followed by:

The corrective actions, research findings on interpreting financial ratio outcomes from Library, textbook, etc;, conclusion and references

Minimum Submission Requirements

This Assessment should be in a separate Microsoft Word document. Use this template for your Assessment.

Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized, logical, and focused.

Your paper must be written in Standard English and demonstrate exceptional content, organization, style, grammar, and mechanics.

Your paper should provide a clearly established and sustained viewpoint and purpose.

Your writing should be well ordered, logical and unified, as well as original and insightful.

A separate page at the end of your paper should contain a list of references, in APA format. Use your textbook, the Library, and/or the internet for research.

Be sure to cite both in-text and reference list citations were appropriate and reference all sources. Your sources and content should follow proper APA citation style. Review the APA formatting and citation style resources found in the Writing Center. The Writing Center can be found in the Academic Success Center in the Academic Tools area of your course. (It should be in Times New Roman 12-point font, include correct citations, Standard English with no spelling or punctuation errors, and correct references at the bottom of the last page.)

 

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