The Time Value of Money and Financial Statement Analysis Conducting Financial Ratio Analysis Select a publicly traded U.S. company that has paid a dividend for at least the last three years, and conduct a financial ratio analysis. You will be using this company for other assignments in this course; thus, please spend adequate time locating a company. The company must have data available for you to conduct a financial ratio analysis. It’s important to select a company in an industry that has industry ratio numbers. You cannot select a privately held company. Calculate all the following ratios for the company for the past three years and compare them to the appropriate industry benchmarks: Liquidity ratios: •Current •Quick Asset Management ratios: •Inventory turnover •Total assets turnover •Fixed assets turnover •Days sales outstanding Debt Management ratios: •EBITDA coverage •Times-interest-earned •Total debt to total assets Profitability ratios: •Return on common equity •Return on total assets •Basic earning power •Profit margin on sales Market Value ratios: •Market/book •Price/earnings •Price/cash flow Create a table that contains the ratios for the various years. Then analyze the information. Look at the trends in the ratios and comment on how they compare to the industry benchmarks. Which ratios are strong? Which ratios need improvement? If you were a stock investor, would you buy the company’s common stock? Why or why not? If you were a bond investor, would you buy the company’s bonds? Why or why not?
Company Game Stop
Data
Liquidity ratios: 2013 2014 2015
Current 1.06% 1.14% 1.26%
Quick .32% .34% .44%
Asset Management ratios: 2013 2014 2015
Inventory turnover 5.40% 5.38% 3.62%
Total assets turnover 1.98% 2.20% 1.97%
Fixed assets turnover 16.19% 18.06% 19.98%
Days sales outstanding 15.35% 20.39% 23.25%
Debt Management ratios: 2013 2014 2015
EBITDA coverage 1.24 1.19 1.32
Times-interest-earned 108.40 27.09 28.76
Total debt to total assets 0.00 0.71762 0.1807
Profitability ratios: 2013 2014 2015
Return on common equity -10.12 15.61 18.20
Return on total assets -6.01 7.61 9.43
Basic earning power 0.024 0.019 0.027
Profit margin on sales 0.033 0.027 0.045
Market Value ratios: 2013 2014 2015
Market/book 59.96 63.79 59.86
Price/earnings 94.91 85.52 88.93
Price/cash flow $0.05 $0.03 $0.7