Question

This week's assignment is to do a thorough financial statement review of the publicly-traded company Facebook. To complete the analysis, you will need to run the five most applicable liquidity ratios, the two most appropriate solvency measures, and the five most appropriate profitability measures. Include these in an excel document.   

I was not given any financial information for facebook.

Answer 1

Liquidity ratios

1. CURRENT RATIO =current asset / current liabilities

=50480/7017 = 7.19

Current ratio measures a company's ability to pay off its short term liabilities with its short term assets.

2. QUICK RATIO = (Total current assets - prepaid expenses- inventory) / current liabilities

=(50480-1779)/7017 =

= 6.94

Quick ratio measures a company's ability to pay off its short term liabilities with its quick assers. Here FACEBOOK has a high liquidity.

3. WORKING CAPITAL = Current asset - Current liabilities

=50480—7017

≠43,463

Working capital shows the short term current assets remaining after settling all short term liabilities or current obligations.

4. OPERATING CASH FLOW RATIO = operating cash flow / current liabilities

=income from opearting/ current liabilities

=24913/7017

=3.55

It shows how well current liabilities of the company covered by the company's operations

5. CASH RATIO = (cash +marketable securities) /current liabilities

=( 10019+31095)/7017

=41114/7017

=5.86

Solvency measures

1.DEBT/ASSET RATIO= Total liabilities / total asset

=13207/97334

=0.136

It shows percentage of assets funded with borrowings. FACEBOOK has only a low percentage funded with borrowings

2.EQUITY/ASSET RATIO = Total equity/ total assets

=84127\97334

=0.864

It shows how much of total asset are owned outright by the investors

Profitability Measures :

1.RETURN ON ASSET= Net income / average total asset

Average total asset = (total assets at end of the year 2018 +total assets at the end of the year 2018)/2

= (97334+84524)/2 = 90929

Return on asset = 22112/ 90929 = 0.24

It is a profitability ratio which shows how much earnings company can make from its assets

2.RETURN ON EQUITY = Net income / shareholder's equity

= 22112/84127 = 0.26

It measures how efficiently a company is handling the money that shareholders have contributed to it.

3.OPERATING PROFIT MARGIN= Operating earning / Revenue

=24913/55838

= 0.446

Operating profit margin ratio is used to calculate the percentage of profits a company produced from its opeartions.

4.NET PROFIT = (Net profit/ sales) * 100

=(22112/55838)*100. =39.60%

This ratio measures the overall profitability of company considering all direct as well as indirect cost.

5. RETURN ON CAPITAL EMPLOYED =( Net operating profit/ Capital employed) * 100

Capital employed = Total assets - current liabilities

= 97334-7017= 90317

Return on capital employed = (net operating profit / capital employed) * 100

= (24913/90317)*100

= 27.58%

This ratio computes percentage return in the company on the funds invested in the business by its owners. A high ratio represents better the company is.

NOTE:I have downloaded the Annual financial statements of FACEBOOK from their website.

screenshot is attached