Assignment- Financial Statement Analysis
Purpose of this Assignment is to analyze some important financial ratios for the company based on its past performance in order to make a reasonable assessment about its future prospect. Also this analysis sets a base on your investment decision in the future assignments.
A. You should comment on the major changes you observe over five years of balance sheets, income statements, and cash-flow statements. If you have explanations to support these major changes, provide them.
B. Using the same five year statements, you should provide a complete DuPont Analysis. (as enclosed in the Textbook) Out of DuPont model, you should comment on the following aspects of your company:
Operating efficiency (total assets turnover)
Operating profitability (profit margin, earning per share)
Financial risk (leverage ratio)
Growth potential (retention rate, return on equity, and sustainable growth)
All ratios should be analyzed regarding their trend over five years as well as compared to the industry's standard. You may use ratios of your competitor or the leading company in the industry as the proxy for the industry's standard.
C. The conclusion should report what you expect the company to do for the next year in order to maintain its leading position, or improve some aspects that seem below the industry average.
D. Using financial statements, you should calculate following market ratios for your firm for last five years.
P/E ratio
P/Cash Flow ratio
P/Book ratio
P/Sales ratio
Do not forget to cite your sources where it is necessary.
Do not forget to provide in appendices:
• five year of balance sheets, income statements neatly presented
• the values for all ratios and industry's values for comparison (tables and graphs)
Problem Solving Assignment
1. Use the following financial statements to find
a. Inventory turnover ratio in 2012.
b. Debt/equity ratio in 2012.
c. Cash flow from operating activities in 2012.
d. Average collection period.
e. Asset turnover ratio.
f. Interest coverage ratio.
g. Operating profit margin.
h. Return on equity.
i. Compound leverage ratio.
2. A firm has an ROE of 3%, a debt/equity ratio of .5, a tax rate of 35%, and pays an interest rate of 6% on its debt. What is its operating ROA?
3. A firm has a tax burden ratio of .75, a leverage ratio of 1.25, an interest burden of .6, and a return on sales of 10%. The firm generates $2.40 in sales per dollar of assets. What is the firm's ROE?
4. Here are data on two firms:
a. Which firm has the higher economic value added?
b. Which has higher economic value added per dollar of invested capital?
Attachment:- Lecture-Handout.rar