Question

Select two public companies in the same industry, obtain their most recent published financial statements, and perform financial ratio analysis for both. Write a report to summarize your findings and conclusion. Your report should include:

1. Balance sheet ratio analysis
2. Income statement ratio analysis
3. Statement of cash flow ratio analysis
4. Credit rating of both companies by Standard & Poor’s and Moody’s
5. Ratio comparative analysis
6. Clear conclusion and opinion about which company you prefer to invest in, and why.

Answer 1

Report Writing

IBM and Apple are the two companies that is have chosen for performing the financial ratio analysis. The information of financial statements are taken for identifying that which company is better for investing and earning good rate of return.

Ratio analysis is the technique which is used to determine the profitability, overall capability and performance of the particular company.

Balance sheet ratio analysis or current ratio analysis:

Hence, according to the above table the current ratio of Company Apple is better than the Company IBM. It means the balance sheet of Company Apple is shows that they have sufficient current assets as compared to the Company IBM.

Income statement ratio analysis or gross profit margin analysis:

Hence, according to the above table the gross profit margin ratio of Company Apple is better than the Company IBM. It means the income statement of Company Apple is stronger than the Company IBM. So, individuals should invest in Company Apple.

Statement of cash flow ratio analysis or cash flow to debt ratio analysis:

Hence, according to the above table the cash flow to debt ratio of Company Apple is better than the Company IBM. It means the Company Apple is easily able to pay its debt with their available amount of cash, on the contrary, IBM is not able to pay its debt easily with their available amount of cash because their debt ratio is very less as company to Apple.

Credit Rating for both the Companies:

Moody’s investor services give the Aa1 ratings to the Company Apple which indicates that the credit position of the company is very good and their highest safety in investing the money in this company. On the contrary, Moody’s investor gives the A rating to the Company IBM which shows that there is high safety in investing money in this company. Therefore, according to this credit ratings individuals should invest in Company Apple.

Ratio comparative analysis:

Quick Ratio of Company Apple and Company IBM:

Hence, according to the above table the quick ratio of Company Apple is better than the Company IBM. It means the Company Apple is able to use its current assets to pay the amount of its debts but Company IBM is no easily able to pay its current liabilities with the amount of its current assets.

Conclusion:

Individual should invest in Company Apple because their financial growth and statements shows a better position in terms of balance sheet, income statement, credit rating, and ratio analysis as compared to the Company IBM. Also, there is no risk or highest safety in investing money in Company Apple as compared to the Company IBM.