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
Profitability of Sample Company
Sample Company ROI for 2000
Sample Company ROI for 2001
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
Appendix A – Sample Company’s Financial Statements from 2006 – 2008
Appendix B – Financial Ratio Analysis of Sample Company
This research paper will evaluate Systems Company Plc using standard financial ratio analysis techniques and assess its strengths and weaknesses, and recommendations on how to improve the business. This is written in the form of an internal memo to the CEO of the company from the Management Accountant.
This research paper will reveal the financial analysis techniques used to evaluate the financial performance of the Systems Company Plc, and evaluate the company’s performance and 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 Systems Company’s performance from 2006 to 2008. The third section, Appendix B, contains the actual financial ratio analysis techniques, showing the company’s performance in 2007 and 2008, 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 company’s change in performance between 2007 and 2008.
Date: Oct 1, 2010
To: Kennedy Osemwekhae, CEO Systems Company Plc
From: Ifeoma Uchegbu, Management Accountanat Subject: Financial Analysis Using Ratio Analysis and Recommendation
Using financial statements from 2006, 2007, and 2008, along with standard financial ratio analysis, I have been able to develop what I believe is a clear picture of this company’s financial performance. I have included these statements for your review in Appendix A
Appendix B contains other measures of System’s Company’s financial performance, as expressed in standard financial ratio analysis techniques using figures from the financial reports in Appendix A.
Profitability of Systems Company Plc
First, let’s look at the Return on Investment (ROI) for 2007 and 2008, 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).
Systems Company ROI for 2007
| | |ROI | = |MARGIN |x |TURNOVER | | | | | | | | | | | | | |OPERATING INCOME | = |Operating Income |x |Sales | | | | | | | | | | | | |Input: |498 | = |498 |x |8,251 | | | |Result:|6.9% | =...