Ratio Analysis

Using the financial statements from a company of your choosing, prepare a ratio analysis using five to six financial ratios looking at liquidity, profitability, debt, operational and asset efficiency ratio. The ratios should be relevant to the company, meaning you must be able to explain why you chose those ratios and how they tell us important financial information regarding the company’s financial results. So if you choose a company that has very little inventory, using inventory turnover as a measurement would not be a good choice.

In your analysis answer the following:

Why you chose the ratio?

How does it impact your opinion regarding the financial results?

What does it tell you about the company

How did you come to the conclusion you did?

What are you basing your opinion on?

Would you recommend the company as a “buy”? Why or why not?

Remember, you may begin the analysis thinking you would invest in the company but once the analysis is complete decide that you wouldn’t invest. It’s OK to recommend a “no buy” at the end of the analysis.

Here’s an example: Ace Auto Supply has a current ratio of 2.6 which means it has $2.60 of current assets for every $1.00 of current liabilities. Is that good? Is it bad? Justify your answer by some benchmark. So if I said the industry average for the advertising industry is 1.2; is that a good comparison? No. Comparing it to the industry average for the auto and home supply industry would be a good comparison. So if the industry average is 2.3, Ace is doing better than the average. A low current ratio, under 1.0, would mean they couldn’t meet their debts on time. On the other hand a high current ratio could mean they aren’t using their assets as well as they could be.

Your post should be around 300 words

Finally, remember to provide the link and citation (short version is fine) to the relevant supporting material.
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Posted on May 13, 2016Author TutorCategories Question, Questions