Acc 529 – Accounting for Managerial Decision Making
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FINANCIAL RATIO ANALYSIS
Financial Ratio Analysis
William F. Slater, III
ACC 529 – Accounting for Managerial Decision Making
University of Phoenix
Week 5 Assignment for ePortfolio
Michael Greenen, C.P.A, C.F.P. – Instructor
July 1, 2003
Table of Contents
Table of Contents
Abstract
Introduction
Memorandum
Profitability of Sample Company
Sample Company ROI for 2000
Sample Company ROI for 2001
Stock Performance
Activity of Sample Company
Leverage of Sample Company
Liquidity of Sample Company
What Is Necessary to Assess the Company?
What Ratios Have the Most Value?
What Other Factors, Beyond Ratios, Need To Be Considered?
How Would Your Assessment Criteria Change If The Company In a Different Industry
Changes in Assessment Method
Conclusion
References
Appendix A – Sample Companys Financial Statements from 1999 – 2001
Appendix B – Financial Ratio Analysis of Sample Company
Abstract
This research paper will evaluate Sample Company using review standard financial ratio analysis techniques and assess its potential as a good investment. This is written in the form of a memo to the CEO of an Alabama-based firm, looking for sound financial advice with regards to whether of not buying stock in Sample Company is a sound investment.
Introduction
This research paper will reveal the financial analysis techniques used to evaluate the financial performance of the Sample Company, and evaluate the companys worthiness as an investment. The paper is divided into three sections. The first section is the memo, which is the main body of the paper. The second section, Appendix A, includes as a reference contains each of the sets of the four financial statements that show Sample Companys performance from 1999 to 2001. The third section, Appendix B, contains the actual financial ratio analysis techniques, showing the companys performance in 2000 and 2001, the percent change in performance between these years, a short description of the meaning of each ratio, as well as a short assessment of the companys change in performance between 2000 and 2001. Using these appendices to support the financial analysis ideas expressed in the memo, the reader should feel that they have a complete set of facts to substantiate these ideas and provide a reference for them.
Memorandum
Date:
July 1, 2003
Randall K. Black, CEO
Absolutely Alabama Investments
From:
William F. Slater, III, Consultant
Slater Technologies
Subject:
Financial Analysis Using Ratio Analysis and Recommendation
Dear Randall:
Thank you for the opportunity to review Sample Companys financial statements and make this ratio analysis, as well as some recommendations about possible investment in this company.
Using financial statements from 1999, 2000, and 2001, along with standard financial ratio analysis, I have been able to develop what I believe is a clear picture of this companys financial performance. Note that the financial analysis was done using the financial report data from publicly available financial statements for the years 2000 and 2001. I have included these statements for your review in Appendix A
Appendix B contains other measures of Sample Companys financial performance, as expressed in standard financial ratio analysis techniques using figures from the financial reports in Appendix A.
Profitability of Sample Company
First, lets look at the Return on Investment (ROI) for 2000 and 2001, using the Dupont Model, which is margin times turnover. Margin is net income divided by the sales, and turnover is sales / average total assets (Marshall, 2002).
Sample Company ROI for 2000
MARGIN
TURNOVER
OPERATING INCOME
Operating Income
Sales
AVERAGE TOTAL ASSETS
Sales
Average Total Assets
Input:
8,251
7,196
8,251
7,196