Question

Financial ratios are essential to provide an accurate valuation of a firm. Select a publicly traded firm of your choice. Select one ratio each in the areas of (a) performance, (b) activity, (c) financing, and (d) liquidity warnings. Provide an evaluation of the selected firm's strengths and weaknesses. Based on the ratios you selected, how well does your chosen firm perform? Explain.

I would like to learn about Verizon Wireless

Answer 1

Solution:

Verizon Wireless is the part of Verizon Communication and we will be analyzing the financial statement (2019) to calculate the ratio-

All the data are in millions and for 2019

A) Performance

Net Income = 19,265

Revenue = 131,868,

Net Income Margin = Net Income / Revenue = 19,265/  131,868, = 14.61%

The net income margin is very good at 14.61% so this is the strength of the firm

B ) activity

Revenue = 131,868

Total assets = 264,829

Asset turnover = Revenue / Assets = 131,868 / 264,829 = 0.50

This ratio is not so encouraging as the company generates only $0.5 of sales on $1 asset. This is weakness of the company

C ) Financing

Operating Profit = 30,470

Interest =4,730

times Interest earned = Operating profit / interest = 30,470 / 4730 = 6.44

This is ratio is reasonably good as the ratio should be more than 3. So this is the strength of the company The ratio suggest how easily the firm can pay the interest from operating profit

D) Liquidity

Current Assets = 34,636

Current Liability = 37,930

Current ratio = Current Assets / Current Liability = 34,636/37,930 =0.91

This ratio measures liquidity as how easily the short term obligations can be paid and the ratio should be more than 1. In this case the ratio is less than 1 hence this is weakness.