Computron Case Study Solution

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What can you conclude about the company’s financial condition from its statement of cash flows? Comparing the company’s financial condition with the industry average you can tell that the company has increased its cash flow but there isn’t any increase in the finance, this could mean that the business has low sales, they may have more debt or more liabilities than assets. The inventory turnover is negative which means they are spending too much money for the products and not selling as much as they are spending. What is the purpose of financial ratio analysis, and what are the five major categories of ratios? The purpose of financial ratio analysis is to evaluate several aspects of a company’s operational and financial economy. Ratios are…show more content…
What are the firm’s major strengths and weaknesses? ROA: [(net income/sales) * (sales/total assets)] * total assets/common equity = (44,220/3,850,000) * (3,850,000/1,468,800) = 0.03 * 1.15 = 0.034 = 3,4% Both ROA and ROE are lower than the average which means that there may be financial difficulties ahead. The firm’s major strength is that they have better average return on their investors (debt and stock). On the other hand, the ROE should be greater than the value of the ROA, this may mean that the net asset values are used so the ROE is lower because of accumulated depreciation. In order to fix this, managers should invest in new equipment to make the assets accounts higher. Use the following simplified 2014 balance sheet to show, in general terms, how an improvement in one of the ratios—say, the DSO—would affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would that change “ripple through” the financial statements (shown in thousands below) and influence the stock price? Accounts receivable $ 402 Debt $…show more content…
What are some problems and limitations? You cannot rely on them to an excessive consent because there may be some data that isn’t showing its real value. This is because for example transactions are initially recorded by their cost but this could change over time. Inflation can also affect the liability of the data, if inflation gets high the liability and assets ins the balance sheet will appear very low. You cannot always compare your financial statement with other companies since some of them uses different account practices. They cannot predict the future they show only the values that are present, the company may change a lot from month to month. And in my opinion the worst limitation is that there can be fraud because the management can distort the results, this is a common situation when there is a high pressure to get excellent
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