Analysing financial statement information is one of the important elements in the investment decision making process. However, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. Financial ratio analysis helps an investor to work with these numbers in an organized fashion.
Select a company you are familiar with or any public listed company in which you are able to obtain financial statements for analysis.
Required:
(a) Explain briefly the nature of the business and the environment the company is operating in, highlighting some of the company's key competitors.
(b) From the financial statements, compute the following ratios over a 2 years period and comment on the performance of the company. The financial statements must be as current as possible and copies of the relevant statements should be included in the appendix:
(i) Asset turnover;
(ii) Return on total assets (ROA);
(iii) Debt ratio;
(iv) Times-interest-earned ratio;
(v) Inventory turnover;
(vi) Accounts receivable turnover;
(vii) Accounts payable turnover; and
(viii)Cash conversion cycle.