*** PLEASE READ EVERY DETAIL WITH INSTRUCTIONS ***
There will be some calculations this is 3 Parts !!!!!!!!!!!!
Learn: Reading
and Research
Read
the following chapter from your textbook:
●
Chapter 3: “Understanding
Financial Statements”
●
Chapter 4: “Financial Analysis: Sizing Up Firm Performance”
Chapter
Summaries
Chapter 3 introduces the use of financial
statements, how they are made, and how managers interpret the information. This
chapter will also cover the federal income tax system and how it relates to
corporate taxation and personal taxation.
Chapter 4 explains how to evaluate future cash
flows for a company. It explains how financial statements help with financial
ratios to determine a company’s financial health and value. It will discuss the
incentives for managers to make decisions that will increase shareholder value.
Competency Assessment
This
competency assessment assesses the following Outcome(s):
MT217M2-2: Analyze
financial statements ratios used to measure the financial performance of a
business entity.
PC-1.1: Engage in a team setting with
professional integrity and respect.
Financial
statement analysis is the process of analyzing a company’s financial statements
to make better economic decisions. The process for financial statement analysis
includes specific techniques for evaluating risks, performance, and future
prospects of an organization.
This
assessment is separated into three parts and based on a fictitious company. In
Part 1, you will use the Balance Sheet and Income Statement to calculate the
five categories of ratios. You will calculate and explain the significance of
liquidity, activity, financing, profitability, and market value, and provide a
year-to-year comparison of assessed financial trends. In Part 2, you will
compose an analytical study to assist the CEO of your company to determine if
ABC Company, a technology company dealing with software and hardware, would be
a good investment as an acquisition.
Part 1
You
will use this Excel® workbook with two worksheets to assist
you in completing this part of the assessment. The first worksheet is the
Balance Sheet and Income Statement for ABC Company. The second worksheet
contains a breakdown of categories of ratios where you will complete the
calculations for each ratio. You will also enter the formula written out as to
what information you have used to do the calculations.
You are
going to use the five classifications of financial ratios to assess the
financial performance of ABC Company.
Instructions
You will
present a definition of the classification by citing the course text and other
scholarly sources.
Your
paper should include a measure of, and analysis of, financial outcomes based on
the ratios for each financial ratio classification (i.e., the liquidity
classifications of ratios are based upon the quick and current ratio outcomes).
You
will calculate ratios for each classification for the 3 years of data (i.e.,
the current ratio may have been 1.5 the first year, 1.35 the second year, and
.75 in the most recent year). It is based on these results that you will
measure financial performance, or trends, from one year to the next. It is
imperative that the ratios numbers, and quantitative outcomes, support your
analysis.
1. Using the data from the Income
Statement and Balance Sheet, provide the correct calculation of the liquidity
ratios and an assessment of the company’s ability to maintain liquidity and the
management of current assets and current liabilities. Include the proper
assessment of outcomes as positive or negative trends when all ratio outcomes
are factored as a group.
Liquidity Ratios
● Current Ratio
● Quick Ratio
2. Using the data from the Income
Statement and Balance Sheet, provide the correct calculation of the activity
ratios and an assessment of the company’s ability to maintain liquidity.
Include the proper assessment of outcomes as positive or negative trends when
all four ratio outcomes are factored in as a group.
Activity Ratios
● Inventory Turnover
● Accounts Receivables Turnover
● Total Asset Turnover
● Average Collection Period
3. Using
the data from the Income Statement and Balance Sheet, provide the correct
calculation of the financing ratios. Include the proper assessment of outcomes
as positive or negative trends when all three ratio outcomes are factored as a
group.
Financing Ratios
● Debt Ratio
● Debt-to-Equity Ratio
● Times Interest Earned Ratio
4. Using
the data from the price per share data, the Income Statement, and the Balance
Sheet, provide the correct calculation for the market value ratios below.
Market Value Ratios
● Earnings per Share (EPS)
● Price Earnings (PE)
5. Using
the data from the Income Statement and Balance Sheet, provide the correct
calculation of these four profitability ratios and an assessment of the
company’s ability to maintain, if not improve, profitability based on the
amounts of equity, assets, and levels of profits from sales. Include the proper
assessment of outcomes as positive or negative trends when all four ratio
outcomes are factored as a group.
Profitability Ratios
● Return on Equity (ROE)
● Return on Assets (ROA)
● Net Profit Margin
● Operating Profit Margin
Part 2
In this
part of your assessment, you will compose an analytical study reporting your
results from Part 1. The CEO of your company is forming a task force to review
the financials and present a review for the acquisition of ABC Company. Based
on ABC’s previous 3 years of financials, determine if this would be a good
acquisition. You must form a task force to complete the task.
The
CEO would like most of the departments to participate in the process. Using
each department’s area of expertise, what information would each of the
following departments contribute to the final decision? Provide a minimum
one-paragraph response for each department.
●
Finance Department
●
Sales Department
●
Marketing Department
●
Human Resources
●
Legal Department
Part 3
After
you have provided their input on the effect the acquisition will have on their
department, perform an overall analysis to explain your recommendation to the
CEO. Your analysis should include the following:
● Explain how the company is trending
based on the year-over-year ratios.
● Compare the company to the industry
average in Appendix A in the Excel workbook in areas of profitability,
management effectiveness, and efficiency.
● Based on the above, summarize the
pros and cons of ABC Company using both the year-over-year ratio analysis from
Part 1 and the industry average comparisons from Part 3.
● Provide your final recommendation
as to whether or not the CEO should invest in ABC Company.
Your paper should follow this
format:
●
Title page
●
Introduction: the purpose of the analysis
●
Analysis with subheadings of Part 1, Part 2, and Part 3
●
Recommendation (overall conclusion)
●
Reference page