Question

ACCT 500: Signature Assignment: Finance Assessment –

pick a random company

Part A: Financial Statement Analysis Select the most recent financial set of financial statements for the company of your choice. Be sure to have your company approved by your professor. Here is the scenario for your project: You are the newly appointed treasurer and your partner is the newly appointed controller of your company. In order to learn more about your company, you have decided to analyze the company’s financial performance over the last 2 years. To do this, you have decided to calculate the following ratios for the company’s 2 most recent years in the noted categories: 1. Profitability Ratios a. Gross Margin Percentage b. EBIT Margin Percentage 2. Resource Management Ratios: a. Age of Inventory b. Age of Accounts Receivable c. Age of Accounts Payable 3. Liquidity Ratio: a. Current Ratio 4. Leverage Ratios a. Debt-to-Assets Ratio b. Debt-to-Equity Ratio c. Interest Coverage In addition, you have decided to evaluate the Return on Equity (ROE) of the company by calculating the DuPont Ratio, including the Profit Margin, Asset Turnover, and Financial Leverage Ratios. Required As a member of a team, you will produce a 5–7-page paper that will show your calculations of each of these ratios for the company’s 2 most recent years. In addition, you will provide a brief analysis of each of the ratios. You will also provide a brief evaluation regarding the company’s performance as it relates to the four categories listed above, plus the DuPont Equation. Finally, you will discuss how these ratios will help you make appropriate financial decisions as they relate to your role as a financial manager, and also assist in achieving the firm’s financial management goals. In addition, your team will also produce a 7-10 minute narrated PowerPoint presentation using VoiceThread or a similar tool that discusses the analysis of at least one ratio from the each of the four categories above. In addition, you must also discuss your DuPont Equation results. Finally, you must discuss how these ratios can be used to help you make appropriate decisions in your role as a treasurer or controller. All team member must be involved in the narration of the presentations. As this is a collaborative project, an online collaboration tool (such as Big Blue Button or Cisco Spark) must be used to conduct your team meetings. Evidence must be provided that the tool was used for three weekly team meetings. As with all papers and projects, APA standards are to be followed for all portions of this paper, including but not limited to proper referencing and citations.

Answer 1

1. Profitability Ratios:

• Gross Margin Percentage-

  Gross margin is a company's total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells.

• The higher the percentage, the more the company retains on each dollar of sales, to service its other costs and debt obligations.

• EBIT Margin Percentage- It is an assessment of firms Operating Profitability as apercentage of its total Revenue. As the name suggest it states as Earning Before iterest and taxes. EBIT margin can provide an investor, business owner or financial professional with a clear view of a company's operating profitability and cash flow.

2. Resource Management Ratios:

• Age of Inventory- The average age of inventory is the average number of days it takes for a firm to sell off inventory. It is a metric that analysts use to determine the efficiency of sales.
• Age of Accounts Receivable- The Account receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting debts on that credit. The receivables turnover ratio is an activity ratio measuring how efficiently a firm uses its assets.
  it is caculated by :Net credit sales/Average accounts receivable
• Age of accounts payable-The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers
• it is calculated as follows- Net purchases/ average accounts payable

3.Liquidity Ratios:

• Current Ratios- The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations
  The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates all current assets and liabilities.
  it is calculated as follows- Current Assets/ Current Liabilities

4. Leverage Ratios:

• Debt to Asset Ratio- The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt.
• Debt to equity Ratio- Debt/Equity (D/E) Ratio, is calculated by dividing a company’s total liabilities by its stockholders' equity, is a debt ratio used to measure a company's financial leverage. The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
• Interest Coverage-It is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period.

All these ratios including asset turnover ratios and financial leverages that includes Degree of operating Leverage, Degree of Financial Leverage, Degree of Combined Leverage are really important in knowing about the comapnies health and its structure , the way it is financed and what are its future prospects.Ratios are very important and best way of finding and analysing the comparatives.

we can compare yearly or different accounts, or different comapnies within an industry, these ratios are the best tool in comparing and analysing.