Introduction You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future. Financial Ratio Analysis Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006. This section will discuss ratio analysis for the following ratios: current ratio, quick (acid-test) ratio, average collection period, debt to assets ratio, debt to equity ratio, interest coverage ratio, net profit margin, and price to earnings ratio. Depending on the end user which ratio carries more importance, however, all must be familiar with ratio analysis. Details on each company's performance for each of these areas can be found in the attached ratio analysis worksheet. The first analysis will be on Verizon. The current ratio and the debt to equity ratio both improved in 2006 when compared to 2005. However, the net profit margin dropped from 9.8% to 7.0%. What does this tell us as investors... ... middle of paper ... ... organization's management. The ratios were broken down into classifications of liquidity and asset utilization, debt and interest coverage, profitability and market-based ratios. References: Block, S. & Hirt, G. (2005) Foundations of Financial Management 11th Edition. McGraw-Hill Irwin. Retrieved April 25, 2007 from http://finance.yahoo.com/ Retrieve from http://hoovers.com/verizon/--ID__10197,period__A--/free-co-fin-balance.xhtml Retrieve from http://hoovers.com/verizon/--ID__10197,period__A--/free-co-fin-income.xhtml Retrieve from http://hoovers.com/at&t/--ID__11379,period__A--/free-co-fin-income.xhtml Retrieve from http://hoovers.com/at&t/--ID__11379,period__A--/free-co-fin-balance.xhtml Retrieve from http://finance.aol.com/quotes/verizon-communications-inc/vz/nys Retrieve from http://finance.aol.com/quotes/atandt-inc/t/nys?tabs=quotesandnews
The analytical formats used in response to question number 3 are threefold; 1) trend analysis, 2) common size analysis and 3) percentage change analysis. The rationale for this three-fold approach is that all other ratio analysis is derived from these three. The utilization of trend analysis aids in giving clues as to the financial status of the company is likely to improve or deteriorate. Likewise, the common size analysis relates to the fact that all income statement items are divided by
Financial ratios are "just a convenient way to summarize large quantities of financial data and to compare firms' performance" (Brealey & Myer & Marcus, 2003, p. 450). Financial ratios are very useful tools in order to determine the health of a company, help managers to make decision, and help to compare companies that belong to the same industry in order to know about their performance.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
A company with an annual revenue of $41.4 billion must be financially sound, right? The answer is…“not necessarily!” However, there are tools available that will help determine if our selected company is financially sound. Ratio analyses are those tools used to evaluate the performance of a business and identify potential problems.
After above consultation with mentor, I decided to select ratio analysis model for my research project. Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. (Mark A. Lane, 2002 - 2017).
investors and lenders. There are various financial terms which help in providing financial information of an organization. By looking at the raw data merely it is difficult to make any judgement from the income statement and balance sheet. “Ratio analysis is a form of financial statement analysis that is used to get a quick sign of a firm’s financial performance in several key areas. Ratio analysis is a cornerstone of fundamental analysis. Ratio analysis provides information about company’s financial information, whether it is in loss or profit.
I have leant that ratio analysis offers better insight of a company’s financial position on the short-term and long-term basis. However, I would recommend that investor advice should be based on ratio analysis that considers ratios from several years. This will ensure that the investor is making an informed decision based on the company’s financial ratio performance trend.
Ratio Analysis Ratio analysis is a process of determining and presenting the relationship of items and groups of items in the financial statements so as to provide information to the financial statements in a concise form. In the words of Myres, “ Ratio analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and a study of the trend of these factors as shown in a series of statements.” Advantages of ratio analysis It facilitates the comprehension of financial statements and evaluation of several aspects such as financial health, profitability and operational efficiency of the undertaking. It provides the inter-firm comparison to measure efficiency and helps the management to take remedial measures. It is also helpful in forewarning corporate sickness and helps the management to take corrective action. Trend analysis with the use of ratios helps in planning and forecasting. It helps in investment decisions in the case of investors and lending decisions in the case of bankers and financial institutions. Disadvantages of ratio analysis Ratios are an attempt to make an analysis of the past financial statements; so they are historical documents. Now days keeping in view the complexities of the business, it is important to have an idea of the probable happenings in future. Changes in price levels make comparison for various years difficult. For example, the ratio of sales to total assets in 1999 would be much higher than in 1980 due to rising prices. Types of Ratio 1.ROCE 2.Gross Profit 3.Operating Ratio 4.Price Earning 5.Dividend Ratio 6.Fixed Asset Ratio 7.Stock Turnover Ratio 8.Creditor Turnover 9.Debtor Turnover 10.Liquidity Ratio 11.Quick Ratio ...
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Financial ratio analysis can be an invaluable resource to investors and external users who must determine the financial stability of an organization. This is important, because financial stability represents the soundness, dependability, and efficiency of the business. Understanding how to calculate and interpret financial ratios is an important step in analyzing the financial health of an organization.
Organizations use financial statements and ratio analysis assess financial performance viability. The ratio analysis are used to identify trends and to perform organizational comparison (financial) with other companies within same industry. Ratio analysis, using data reported on the financial statements, are divided into five major categories: common size, liquidity, solvency, efficiency, and profitability. This paper will assess the financial stability of John Hopkins Hospital (JHH) using the five ratio analysis.
Financial statement analysis is used to identify the trends and relationships between financial statement items. Both internal management and external user such as analysts, creditors and investors of the financial statements need to evaluate a company’s profitability, liquidity and solvency. The most common methods used for financial statement analysis are comparative statements, common-size statements, fund flow analysis and ratio analysis. These methods include calculations and comparisons of the results to historical company data, competitors, or industry averages to determine the relative strength and the performance of the company being analyzed. For this assignment I have chosen Telecommunication Company, Digi.Com Berhad and Maxis Berhad for evaluating their financial performance based on the calculated...