Question

For purposes of this discussion, you will assume that you have just been hired by Josephine, a business which connects home-based food vendors to community members seeking home-cooked meals, similarly to the manner in which Über connects drivers to people needing a ride, and Etsy connects buyers to home-based crafts manufacturers. You are new to Josephine, and have been hired as finance manager. You are responsible for Josephine’s initial public offering, and in your capacity as finance manager, you wish to investigate Etsy because it is a firm which has a strikingly similar business model to that of Josephine. You intend to suggest Etsy as a peer, as you move closer to Josephine’s offering. Assume that Etsy is relatively young in terms of length of operations as a publically-traded firm. This firm’s Cash Flow from Assets, Operating Cash Flow and Cash Flow to Stockholders have sometimes taken on negative values, and thus you understand that this firm may or may not offer a positive example of financial management, for a young and growing firm such as Josephine. You have thus scheduled a discussion on this matter with Josephine’s chief executive officer to analyze Etsy (Etsy, 2016). Tasks Present your findings to Josephine’s chief executive officer, speaking as Josephine’s finance director. Evaluate evidence found in Etsy’s basic financial statements that may be interpreted as reflecting managerial goals, features of the firm’s unique operational structure, and high growth: Using the balance sheet identity (which implies that assets must be equal to liabilities plus owners’ equity), Using the cash flow identity (which implies that cash flow from assets must equal cash flow to creditors plus cash flow to stockholders), and Examining the need to distinguish between book and market values.

Answer 1

Answer:-

With the help of Ratio Analysis Tool on the financial statements of Etsy. The Ratio Analysis tools are used on Balance Sheet Statement are given below:-

1. Liquidity Ratio - provides capability of organisation to honor its short term liabilities
2. Solvency Ratio:- provides long term solvency of organisation
3. Efficiency Ratio - provides measure of various assets such as employees, investors lenders.
4. Profitability Ratio - provides survival, growth and expansion of organisation

Operational Structure:-

Operating cycle is all about time taken by cash to become cash again. Companies needs to serve customer and reward stakeholders.

From Balance Sheet Ratio such as Inventory Turnover, Debtor /Creditors Turnover, Current Asset Turnover, Capital Turnover as well as Capital Turnover provides operation structure as well as operational efficiency.

From Cash Flow Statement the complete operational structure as well as operational activities are under operating activities section ofcashflow to enhance further analysis along with ratio analysis.

Growth:-

Profitabilty Ratio showcase survival, growth and expansion by using ratios such as Return on Equity, Return on Assets, Return on Capital employed, Profit Before Tax, Profit After Tax.