I would like you to perform a ratio analysis on the financial statements. Focus on the financial statement analysis chapter (PDF) you are reading this week. You will want to compute ratios for your company for the last two years. Do not compute each ratio you learned about for your company.

QUESTION

I would like you to perform a ratio analysis on the financial statements. Focus on the financial statement analysis chapter (PDF) you are reading this week. You will want to compute ratios for your company for the last two years. Do not compute each ratio you learned about for your company. There may be some that are not relevant. Rather focus on those eight ratios that you feel are the most important and relevant to analyze how your company is doing. Make sure to justify the ratios that you choose for your analysis. Compare how your company has done to the industry averages. Do you notice any trends that are positive or negative? Does anything look good or bad that is notable? Do you have any suggestions on things they could be doing to improve these ratios? Please analyze what you found for each of the eight ratios. Then organize your findings into a 15 minute presentation that you will work on during residency. Be sure to include some background on your company in your presentation.

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ANSWER

To conduct a ratio analysis, you would typically select a set of key ratios that are relevant to the company and industry. These ratios can include profitability ratios, liquidity ratios, solvency ratios, and efficiency ratios. Some commonly used ratios include:

Profitability Ratios: These ratios measure the company’s ability to generate profits from its operations. Examples include gross profit margin, operating profit margin, and net profit margin.

 Liquidity Ratios: These ratios assess the company’s short-term liquidity and ability to meet its short-term obligations. Examples include the current ratio and the quick ratio.

Solvency Ratios: These ratios evaluate the company’s long-term solvency and its ability to meet its long-term obligations. Examples include the debt-to-equity ratio and the interest coverage ratio.

Efficiency Ratios: These ratios measure how effectively the company utilizes its assets and resources to generate sales and income. Examples include inventory turnover ratio, accounts receivable turnover ratio, and asset turnover ratio.

When comparing the company’s ratios to industry averages, you can identify any significant deviations or trends. If the company’s ratios are better than the industry averages, it may indicate a competitive advantage. Conversely, if the ratios are lower, it could suggest areas for improvement.

In your 15-minute presentation, you should provide an overview of your company, its industry, and the key ratios you have selected for analysis. Present the findings of each ratio, highlighting any notable positive or negative trends. Discuss the implications of these trends and provide suggestions for improvement if necessary. Additionally, you can compare your company’s ratios to industry benchmarks to provide a broader context for the analysis.