Assignment: Ratio analysis is a method used to analyze the financial reports of a company and interpret trends in the company's performance. As a nonaccounting manager, you use numerous ratios to analyze your company's performance year-by-year and benchmark the performance to industry averages, to an individual competitor's performance, or against a predetermined target.
For this assignment, read "Case study question 7.2: General Machinery Ltd" on page 168 in chapter 7 of our textbook, Accounting for Managers: Interpreting Accounting Information for Decision Making, 5th. Using the data from the case study, repond to the tasks below. (Information Supplied Below)
General Machinery's Statement of Cash Flows is also shown for the last few years (Table 7.20). Table 7.20 Statement of Cash Flows. 2014 2013 2012 2011 Cash flow from operating activities Cash receipts 772,000 700,000 635,000 595,000 Cash payments -628,000 -601,000 -537,200 -503,000 Interest paid -72,000 -60,000 -40,000 -25,000 Income tax paid -17,700 -11,100 -12,240 -20,700 Net cash from operating activities 54,300 27,900 45,560 46,300 Cash flow from investing activities Payments for property, plant & equipment -200,000 -50,000 -50,000 - Net cash used in investing activities -200,000 -50,000 -50,000 - Cash flow from financing activities Proceeds from borrowings 50,000 50,000 50,000 - Dividends paid -20,000 -15,000 -14,000 -20,000 Net cash from/used in financing activities 30,000 35,000 36,000 -20,000 Net increase/(decrease) in cash -115,700 12,900 31,560 26,300 Cash at beginning of year 135,700 122,800 91,240 64,940 Cash at end of year 20,000 135,700 122,800 91,240 Discuss the major issues facing the company. Recommend what actions the company should take to improve its overall performance, addressing each of profitability, liquidity, gearing, activity, and shareholder return measures. In what way does the Statement of Cash Flows help you to interpret the ratios and financial performance of the company?
Task: Consider the following scenario for this assignment: You are an external investor who is considering General Machinery as one of the potential companies for investment. Respond to the following in your initial discussion post:
1. Discuss the major issues facing the company.
2. Recommend what actions the company should take to improve its overall performance, addressing each of profitability, liquidity, gearing, activity, and shareholder return measures.
3. In what way does the Statement of Cash Flows help you to interpret the ratios and financial performance of the company?
4. What information does ratio analysis provide for meeting the requirements of the case questions?
5. Which ratios are the most important, and which ones are of limited value? Justify your choices for the scenario.
6. Why do you need to compare:
- The current year ratios with the prior year ratios?
- The ratios of competitors in the same industry or some other benchmark?
7. Other than the computations used in ratio analysis, what else is necessary to properly analyze a company for investment?
Information related to above question is enclosed below:
Attachment:- Module Overview.rar