Question

Internet Case 14.5 – Evaluating Liquidity and Profitability

(MUST POST FIRST) Initial Post – As an employee, write an internal memo to your manager addressing the following:

Use the Internet search engine of your choice and do a general search on the name of a company of interest to you. Explore the web site of the company you choose and locate that company’s most recent financial statements. You may need to look under a category that provides general information about the company and/ or investor information.

Find and read the description of the company, including the type of business it is in. Why is gaining an understanding of the industry and type of business an important starting point for financial statement analysis?

Locate the company’s primary financial statements. Find the summary table of ratios in this chapter in Exhibit 14–26. Calculate three of the listed ratios under each of the following categories: “Measures of short-term liquidity” and “Measures of profitability.” Show your work in calculating these ratios. Write a brief statement describing what you have learned about your company’s liquidity and profitability.

Why do you think the Internet has become such a widely used source of financial information by investors and creditors?

Answer 1

we have chosen PFIZER,

IT IS ONE OF THE LARGEST PHARMACEUTICALS COMPANY HEADQUARTERED IN NEW YORK. IT IS LISTED ON THE NEW YORK STOCK EXCHANGE. THE COMPANY DEVELOPS AND PRODUCES MEDICINES AND VACCINES.

IT IS VERY IMPORTANT TO KNOW THE NATURE AND KIND OF BUSINESS BEFORE ANALYSIS OF THE FINANCIAL INFORMATION BECAUSE WITHOUT A PROPER KNOWLEDGE OF THE BUSINESS AND ITS OPERATIONS, THE STUDY OF FINANCIAL INFORMATION WILL BE USELESS.

MEASURES OF SHORT TERM LIQUIDITY: AS PER MARCH 2017

1) CURRENT RATIO: CURRENT ASSETS/CURRENT LIABILITIES

=2.64

CURRENT ASSETS ( AS PER BALANCE SHEET)=2078.89

CURRENT LIABILITIES: =786.95

2) QUICK RATIO: CASH AND CASH EQUIVALENTS S+ ACCOUNT RECEIVABLES/CURRENT LIABILITIES

=2.08

INVENTORY TURNOVER RATIO:

SALES/INVENTORY

= 2041.35/321.90

=6.34

THESE RATIOS SHOW THE ABILITY OF THE COMPANY TO EFFICIENTLY US THE CURENT ASSETS TO PAY OFF THE CURRENT LIABILITIES. HIGHER THE RATIO BETTER IT IS.

PROFITABILITY RATIOS:

NET PROFIT MARGIN: NET PROFIT/SALES

= 336.78/2041.35= 17

ASSET TURNOVER RATIO: SALES/AVERAGE TOTAL ASSETS * 100

=2041.85/ 3092.17

AVERAGE TOTAL ASSETS =( 2913.71+3270.63)/2

TOTAL ASSETS AT THE BEGINNING + TOTAL ASSETS AT THE END OF THE YEAR/2

RETURN ON NET WORTH/EQUITY : NET INCOME/ EQUITY

:EQUITY= TOTAL SHAREHOLDERS FUND

336.78/2418.88

= 13.92%

THESE RATIO DETERMINE THE EARNING CAPABILITY OF THE BUSINESS, THE HIGHER THE RATIO THE BETTER IT IS.

THE NET PROFIT MARGIN NAS BEEN INCREASING FOR PFIZER OVER THE YEARS, WHICH IS A POSITIVE INDICATOR.

THE INFORMATION AVAILABLE ON THE ANNUAL REPORT AND OTHER FINANCIAL INFORMATION PROVIDE A TRUE PICTURE OF THE COMPANY FINANCIALS THAN THE PRESS RELEASES OF A COMPANY. HENCE, THE INTERNET HAS BECOME A POWERFUL TOOL TO ACCESS INFORMATION FOR THE INVESTORS AND CREDITORS SO THAT THEY CAN MAKE BETTER FINANCIAL DECISIONS.