Financial Ratio Analysis Report

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A. Introduction

In assessing the significance of various industry financial data, experts engage in financial ratio analysis, which is the process of determining and evaluating financial ratios. A financial ratio is a relationship that indicates something about an industry's activities, such as the ratio between the industry's current assets and current liabilities or between its accounts receivable and its annual sales.

The basic sources for these ratios are the company financial statements within the industry that contain figures on assets, liabilities, profits, and losses. Industry ratios are only meaningful when compared with other information. Since individual companies are most often compared with industry data, ratios help an individual understand a company's performance relative to that of competitors and are often used to trace performance over time.

This report will evaluate the financial performance of Edison Schools, Inc., and evaluate the company's worthiness as an investment. As one of the first and the largest private operators of public K-12 schools, Edison Schools, Inc. is on a mission to prove that it can outperform traditional public schools while earning profits in the process. Christopher Whittle, a Wall Street darling who has previous experience in several other education ventures, leads Edison Schools, Inc. The company has undergone a rapid growth strategy since opening its first four schools in the 1999 school year. In the 2001 school year, Edison operates 136 schools with approximately 75,000 students. From a business standpoint, Edison has staked its success on its ability to gain economies of scale in school operation.

The first section of this report, which is the main body, will use financial statements from 1999, 2000 and 2001, along with standard financial ratio analysis to develop a clear picture of Edison Company's financial performance. The second section, Appendix A that is included as a reference contains...
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