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analysis of financial statement
analysis of financial statement
analysis of financial statement
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Financial Stability and Performance Financial Statement and Ratio Analysis Upon examining P&G’s financial ability to meet short-term obligations, it is apparent that not only have their current liabilities exceeded current assets over the last three years, but close to half of their current assets have been tied up in inventories and other illiquid assets. For example, assessing both the quick and current ratio respectively shows that less than 70% of the firm’s current assets could be converted immediately to pay current commitments, but a little more than 90% of the firm’s liabilities would ultimately be covered. Though, based on industry average similar findings occur; therefore, it must not be uncommon for industries similar to P&G to …show more content…
For example, just last year P&G issued product recalls affecting Iams and Eukanuba pet foods brands “after its own inspections found the potential for salmonella contamination in a separate lot” (Barney, 2013, para. 2). The recalls happened nearly after The Food and Drug Administration’s onsite inspection found cases of Salmonella in the company’s Natura pet food products. Since the pet food industry was one of P&G’s sluggish divisions due to weak sales, the company has now divested it; thereby, reduce costs and boost financial numbers. Although no reports were made regarding illnesses, or worst, even death, the recall was enough to cause a decline in company sales; furthermore, the possibility of raising consumer doubt toward P&G’s other product brands. Several additional recalls were made in previous years pertaining to defective child-resistant packaging, mismatched expiration dates, and other forms of bacteria found in healthcare products, (Procter & Gamble, 2014, para. 1). These types of expenditures disrupt financial performance, as product recalls involve replacing products that are faulty, and increase the chances of a lawsuit if fatal suffering were to
Various ratios are used in this analysis. The organization’s WIP and FG inventory turnover ratios from 2009 demonstrate that the firm takes fewer days to sell both inventories (3.64 days and 73.43 days respectively) than the average firm in the industry In 2009, the total asset turnover ratio for Gemini Electronics was 1.37 while the industry average was 1. This is an indication that Gemini Electronics is generating business at a steady pace. Gemini Electronics is utilizing its fixed assets at a higher rate than other firms in the industry. Their utilization shows the Gemini’s ability to use L, P, & E in order to generate sales. Gemini Electronics A/R is 40.16, which is 25% higher than the industry average. This means Gemini Electronics waits about 40 days to receive payment for goods sold. High levels of A/R can negatively affect the firm and their stock
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
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 thing to analyze is GE’s capacity to pay its debts as they come due or in other words its liquidity. GE consolidated liquidity position is adequate. GE’s liquidity is supported both by the firm’s consistent earnings track record and its ability to quickly divest business or assets to fit its strategic goals. Consolidated cash and equivalents were $8.3 billion. On a consolidated basis GE had a total of around $56 billion of contractually committed lending arrangements as well as numerous other sources of liquidity. General Electric, a triple-A rated, frequent borrower, is in a stable position with regards to liquidity. Its issuance policy is not based on market outlook but rather on a planned program of issuance to support its ongoing financial businesses and its addition of assets.
Overall, Horizontal analysis and financial ratios are essential factors that businesses use to monitor its liquidity. Therefore, in order to improve Apple’s ratios and profitability, the company needs to implement a strategy to increase the company’s liquidity. Business owners or managers should monitor current ratio and acid test ratio as these ratios help us to ensure the company has the proper liquid assets to pay current liabilities, to stay in operations and to expand the company. As we noted in our acid test ratio and current ratio for the company, we show a lower ratio for acid test ratio than the current ratio, which means that the company’s current assets rely on inventory. Therefore, the company needs to convert old inventory into
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.
This financial ratio analysis will help to identify Rolls-Royce’s strength and weaknesses during three years period from 2011 until the end of 2013. While it is a helpful tool for investors to make investment decisions base on profitability of the company, managers can make strategic decisions of the company. However, there are some limitations in using financial ratio analysis alone when make decisions. Comparing ratios with the industry norm and with the company’s rivals, the user of the financial ratio analysis will be able to anticipate future prospects. Rolls-Royce’s nearest rivals are General Electric (GE) and Pratt & Whitney, owned by United Technologies Corporation (UTC). These world 's top three companies are investing massively in R&D to satisfy demand of a booming global market for environmentally cleaner, energy efficient power engines that result in a huge number of orders of commercial airliners. All top
Firstly, based on the profitability, P&G has earned higher profit from each dollar of revenue which is 13.4% compared to C-P 12.9% for the recent year 2013. In addition, P&G also has higher EPS of US$4.04 compare to C-P US$2.41. In contrast, C-P register a Gross Profit of 58.7% and Return on Equity of 91.0% as opposed to P&G’s 49.6% and 17.0% respectively. C-P seems to rely heavily on debt and this has helped to improve the Return of Equity. P&G also has its downside in asset turnover ratio (0.62) and fixed turnover
The article Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy was written in 1968 by Edward I. Altman. The purpose of the article is to address the quality of ratio analysis as an analytical technique. At the time some academicians were moving away from ratio analysis and moving toward statistical analysis. The article attempted to determine if ratio analysis should be continued, eliminated and replaced by statistical analysis or serve together with statistical analysis as cofactors in financial analysis. The example case used by the article was the prediction of corporate bankruptcy.
The Quick Ratio shows that the company’s cash and cash equivalents are the highest t...
A benchmarking analysis against competitors is provided in excel. These data indicate that Primo was performing poorly against its three competitors in terms of day’s receivable and day’s inventory. The fact that day’s payable was 40 days versus 30 days for the credit terms offered by its suppliers, and much higher than for its competitors, helps explain much of the reason for complaints from the company’s suppliers about late payments. In the future, Primo might have limited access to supplier credit, and suppliers might ultimately refuse to sell to the company unless payment is made up front in cash. The data also indicate that the company was performing poorly against its competitors in every profitability metric displayed.
Starbucks’ solvency ratios provide valuable insight into whether the company is generating sufficient cash flow to meet short-term and long-term obligations. At the end of 2014, Starbucks current assets of $4169 million and current liabilities of $3039 million produced a current ratio of 1.37. During this same period, Starbucks had quick assets of $2474 million (cash of $1708 million + short-term investments of $135 million + accounts receivable of $631 million) with current liabilities of $3039 million resulting in a quick ratio of 0.81. These ratios imply that Starbucks was reasonably liquid at the end of 2014 with $1.37 in current assets and $0.81 in quick assets for every $1 in current liabilities. In 2013, Starbucks had a current ratio of 1.02 and a quick ratio of 0.71 and the previous year the company’s current ratio was 1.90 with a quick ratio of 1.14. This data shows that Starbucks’ current ratio and quick ratio decreased considerably from 2012 to 2013 indicating a reduction in liquidity. Starbucks liabilities increased dramatically in 2013 because of an accrued
A question for the class, what do you think of Debt Ratios is a good test for Real Estate. We are by nature in an industry that always have large amount of debt. What do you think?
Maintaining a company’s financial assets is a daunting task. Cash management techniques and short-term financing provide accounting executives with the tools needed to survive the constant changes within the economy. The combination of these tools and the knowledge of the world economy will assist companies in maintaining current assets and facilitates growth.
The current ratio and quick ratios for the year 2003 are at 2.5 and 1.3, which are both higher than the industry average. The company has enough to cover short term bills and expenses. Both the current and quick ratios are showing an upward trend compared to 2001 and 2002. The current assets decreased by $ 20,264 to $ 1,531,181 and the current liabilities also decreased considerably by $255,402 to $616,000, a 29.3% decline, thus making the current ratio jump to a 2.5. The biggest decline was seen is accounts payable which decreased by $170,500 to $230,000, a decline of 42.6 %.