Question

I have to do a project on navient corporations and involve this components below can someone please help give me example of what each mean/would look like for my project?

1. Profitability

2. Competitive advantage

3. Return on equity

4. Financial leverage

5. Liquidity

6. Solvency

7. Credit analysis

8. Cash flow analysis for the three areas

9. Default risk

Answer 1

Let’s explain each term;

(1). Profitability;

Profitabiity refers to the measurement of level of profitability of a particular firm & company. As we know that profitability of a firm & company can be measured with the help of some basic accounting ratios. In other words we can say that profitability can be measured with the help of gross profit ratio, net profit ratio, return on equity etc.

So profitability shows how the operations of a firms & company is performing is measured with the help of tools of profitability measurement. So for any project study profitability is key tool.

(2). Competitive advantage;

With the help of competitive advantage, an analyst is able to know about the strengths of the firm which are unique in compare to other firms. In other words we can say that due to some specific operational tools, management strategy and other business plans a firm may be in position to take additional advantages in compare to other firms. Such condition is known as competitive advantage.

(3). Return on equity;

Whenever we study any project then return on equity is a major tool to know about the profitability of the project. If ROE is not reasonable then that project can not be profitable. In other words we can say that return on equity helps in measuring overall profitability of the invested amount.

(4). Financial leverage;

Financial leverage helps in understanding about the capital structure of a firm. As we know that a firm can improve its’ return with the help of using debt capital in its’ capital structure. So financial leverage helps in understanding about how use of debt can affect eranings. Thus study of financial leverage is very important tool while analysing any project.

(5). Liquidity;

Liquidity is the measurement of short-term paying capacity of the firm. In other words we can say that when a firm is able to meet its’ short-term obligations then liquidity position will be good or vice versa. Hence it is clear that measurement of liquidity is ket tool while studying a project. Liquidity can be measured with the helps of current ratio, quick ratios etc.

(6). Solvency;

Solvency helps in knowing the long-term debt paying capacity of a particular firm & company. We can say that solvency helps in knowing whether a firm & company will be able to pay its’ long-term borrowings on time or time. So while studying a project & firm this is very important tool.

(7). Credit analysis;

Credit analysis is done to know about the credit worthiness of a particular firm & company. With the help of credit analysis we can know about the true debt repayment capacity of a firm and company. In other words we can say that credit analysis is a tool for a proper study about a project.

(8). Cash flow analysis;

Cash flow analysis helps in knowing about the sources and uses of funds. We know that a firm & company may have sufficient surplus but may not have good cash position hence in such cases, cash flow analysis helps in understanding cash position of the firm.

(9). Default risk;

It helps in knowing about the possibilities of failure in repayment of debts. As we know that due to several reasons a firm & company may be inable to meet its’ debt obligations. Hence with the help of default risk we can know about the chances of failure in meeting long-term liabilities.