Question

Select one of the following companies, and use yahoo finance (or an alternate similar source) to locate and review the balance sheet, income statement and statement of cash flows from the past fiscal reporting year. This assignment should be prepared professionally and formatted well, and include proper citations for sources used. FOUR CHOICES ONLY I tried to select some good ones: • Adidas (manufacturing – sports mgmt) • Urban Outfitters (merchandising) • Sony Music Entertainment (for our music industry group) • Apple (for our computer science) 1. Using the financial statement information, calculate the following ratios for each of the prior two fiscal years. You must show the formula and the input data. Then, explain what the ratios may indicate for the company in 2-3 sentences for each one (be as specific as possible, and include chapter concepts such as liquidity, etc.). (7) also note that you DO NOT NEED TO AVERAGE ANY FORMULAS so if the formula reads: average inventory just take one inventory number from the financial s tatements. *Current Ratio *Inventory Turnover *Days in Receivables *Total Debt to Total Equity Ratio *Net Profit Margin *ROE *EPS (you do not have to calculate this one – you can research it online in the financials) 2. Select any two of above ratios, and then research the industry average for the ratio and compare it to your company’s. Show these comparisons in a chart or graph each. Explain what additional observations can be made based on this comparative information for your company in 3-4 sentences per ratio selected. (2) 3. Explain what other information you would want to have in order to make a better decision on the overall health of your company. You should include at least one additional ratio, and then 2 other quantitative or qualitative aspects for the business. (1)

Answer 1

ANSWER:

Figures have been taken from FACEBOOK -10-K for fiscal years ending Dec 31, 2015 & 2016

FACEBOOK	Formula	2015		2016
Current Ratio	Current Assets/Current Liabilities	21652/1925=	11.25	34401/2875=	11.97
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Google 6.01 & Twitter 9.79
Has a much higher current ratio indicating inefficient stacking & utilisation of FB's current assets & employment of excess working capital missing out on alternate profitable propostions--ie. Remaining more liquid than what is required
Inventory Turnover	Cost ofRevenue/Av.Inventory	2867/0	Undefined	3789/0	Undefined
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
This is typical of companies in the internet services industry
Days in Receivables	365/Receivables Turnover	365/(17928/2559)=	52.099	365/27638/3993)=	52.733
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Comparable with Google's collection days of 51.48 & much better than Twitter Inc.'s 77.91 --- reason for holding more current assets as credit collections are fast
Total Debt to Total Equity Ratio	Total Long-termDebt/Total Equity	3264/44218=	0.0738	2892/59194=	0.0489
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Higher employment of debt when compared to Google's 0.03 & Twitter inc.'s 0.37
Net Profit Margin	Net Profit/Sales	3688/17928=	20.57%	10217/27638=	36.97%
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Higher profit margin compared to Google's 19.49% & Twitter's Loss % of 18.25
ROE	Net Profit/Total Equity	3688/44218=	8.34%	10217/59194=	17.26%
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Google ROE --13.93 & Twitter Inc -9.65
EPS	Net profit/No.of common stock,issued& o/s	3688/2803=	1.31	10217/2863=	3.56
Comparison with Industry competitors (Google--ie. Alphabet Inc. & Twitter Inc.)
Has increased in 2016