Question

Progressive Insurance 2017 Annual Report

Analyze the company's financial strength:

Assess the financial strength of the company.

How is the financial strength likely to change in the next year or so?

What are its sources of capital and what is the value of the company's capital?

How have capital markets responded to the company in the last year?

What is the quality of earnings?

How does the company compare with others in the industry?

Report:http://media.corporate-ir.net/media_files/irol/81/81824/arInter/17_annual/assets/pdf/Progressive-2017-Financial-Review.pdf

Answer 1

To appreciate and worth a enterprise, traders have to seem at its financial function. Fortunately, this is not as tricky because it sounds.

In the event you borrow cash from a bank, you have got to record the worth of your entire tremendous belongings, as good as your entire significant liabilities. Your bank makes use of this information to check the strength of your economic role; it appears on the best of the property, corresponding to your auto and your residence, and locations a conservative valuation upon them. The bank additionally ensures that each one liabilities, reminiscent of mortgage and bank card debt, are safely disclosed and absolutely valued. The complete value of all assets less the total price of all liabilities gives your net worth, or fairness.

Evaluating the fiscal role of a listed enterprise is fairly similar, besides buyers must take a different step and don't forget financial position in terms of market value. Let's take a look.
Start With the stability Sheet
Like your possess economic position, a organization's financial function is defined via its property and liabilities. A company's monetary position also involves shareholder equity. All this information is awarded to shareholders in the stability sheet.

Let's feel that we're inspecting the financial statements of fictitious publicly listed retailer, The Outlet, to assess its fiscal position. To do that, we compare the manufacturer's annual file, which is able to by and large be downloaded from a corporation's website. The average format for the steadiness sheet is belongings, adopted with the aid of liabilities, then shareholder fairness. (For more on the balance sheet, see studying the balance Sheet.)

present assets and Liabilities
assets and liabilities are damaged into present and non-present gadgets. Present property or liabilities are those with an expected life of lower than 12 months. For example, suppose that the inventories that The Outlet mentioned as of December 31, 2017, are anticipated to be sold within the following 12 months, whereupon the level of inventory will fall and the amount of money will upward push.

Like most other outlets, The Outlet's inventory represents a tremendous percentage of its current assets, and so will have to be carefully examined. In view that stock requires an actual investment of worthy capital, organizations will attempt to slash the worth of stock for a given level of income, or maximize the extent of revenue for a given degree of inventory. So, if The Outlet sees a 20% fall in inventory value together with a 23% bounce in income over the prior 12 months, this can be a sign they are managing their stock fairly well. This discount makes a constructive contribution to the corporation's running money flows.

Current liabilities are the obligations the organization has to pay inside the coming year, and comprise current (or accrued) obligations to suppliers, workers, the tax place of work and providers of short-time period finance. Organizations attempt to control cash glide to be certain that cash are on hand to satisfy these quick-term liabilities as they arrive due.

The present Ratio
the present ratio which is total current property divided by using complete present liabilities is regularly utilized by analysts to examine the ability of a manufacturer to fulfill its short-term responsibilities. A suitable current ratio varies throughout industries, but will have to no longer be so low that it suggests impending insolvency, or so high that it indicates an needless build-up in money, receivables or stock. Like several type of ratio evaluation, the evaluation of a enterprise's present ratio should take place in terms of the previous. (To learn extra, read Dynamic current Ratio: What it's And methods to Use It.)

Non-present assets and Liabilities
Non-current assets or liabilities are those with lives expected to lengthen past the subsequent 12 months. For a manufacturer like the Outlet, its biggest non-present asset is more likely to be the property, plant and apparatus the company desires to run its industry.

Lengthy-time period liabilities might be related to tasks below property, plant and gear leasing contracts, together with other borrowings. (learn extra about analyzing lengthy-term liabilities in fiscal Statements: lengthy-term Liabilities.)

monetary position: book value
If we subtract total liabilities from assets, we are left with shareholder equity. Just about, that is the booklet value, or accounting value, of the shareholders' stake in the corporation. It is mainly made of the capital contributed via shareholders over time and earnings earned and retained by means of the manufacturer, together with that portion of the any revenue not paid to shareholders as a dividend. (learn extra about guide price and what it way to traders in ebook worth: How risk-free Is It To buyers?)

Market-to-ebook multiple
with the aid of evaluating the company's market price to its guide value, traders can partly assess whether or not a inventory is below- or over-priced. The market-to-ebook more than one, even as it does have shortcomings, remains a key instrument for value buyers. (that you can read extra in regards to the market-to-ebook a couple of in the article value through the publication.) huge educational proof suggests that businesses with low market-to-guide stocks perform better than those with excessive multiples. This is smart in view that a low market-to-publication more than one indicates that the enterprise has a powerful fiscal role when it comes to its price tag.

Picking out what can also be outlined as a excessive or low market-to-publication ratio also is dependent upon comparisons. To get a way of whether The Outlet's book-to-market more than one is excessive or low, you need to evaluate it to the multiples of alternative publicly listed shops.

The backside Line
A organization's fiscal position tells investors about its normal well-being. A be taught of it (and the footnotes within the annual file) is primary for any severe investor looking to realize and price a corporation appropriately