Analyzing Financial Information Using Ratios
A resource article by Kate Barr, executive director, Nonprofits Assistance Fund _____________________________________________________________________________________

Leaders of nonprofits who seek to understand the organization’s financial situation usually start by reviewing the financial reports. Understanding the financial information is the building block of any financial discussion. Beyond understanding the reports, much can be learned from analysis of the information and interpretation of what it is telling you. The basic analysis includes comparing financial reports to a benchmark such as the budget or the financial report from the previous year. One essential question is: does this information match our expectations? For a more technical financial analysis, ratios can be used to deepen the understanding and interpretation. Financial ratios are an established tool for businesses and nonprofits. While there are dozens of ratios that can be calculated, most nonprofits can use a handful of them to learn more about their financial condition. This tool provides the description and calculation of 14 ratios including a mix of balance sheet and income statement ratios. Individual nonprofits must decide for themselves which calculations are valuable. To make the most of ratio calculations, start with some fundamental guidelines. Financial ratios are useful if they are: • • • • • Calculated using reliable, accurate financial reports (such as an annual audit or final report) Calculated consistently from period to period Used in comparison to benchmarks or goals Viewed both at a single point in time and as a trend over time Interpreted in the context of both internal and external factors

Nonprofit Financial Ratios
Fourteen of the most frequently used financial ratios for nonprofit organizations are defined on these pages. A spreadsheet with the ratio calculations is also...

...FINANCIALRATIOSFinancialratios are indicators of a company’s performance as discernable from the company’s Balance Sheet and income Statement. We will discuss some of the simple ratios of a company and talk about their significance.
Liquidity Ratios: Show the company’s ability to pay of its current liabilities from its current assets.
1. Current Ratio
Current assets should be significantly higher than current liabilities so that the current ratio is higher than 2:1.
2. Quick Ratio (Acid Test Ratio)
or
Reduces the numerator of the current ratio formula by deducting Inventory (the least liquid of the current assets).
The Numerator should High enough so that the quick ratio is at least 1:1.
Asset Management Ratios: Show the company’s efficiency in using its assets in generating sales. Generally, high asset management ratios indicate high level of efficiency in utilising assets.
1. Average collection Period (ACP)
Shows the average number of days taken by the company to collect its receivables. The lower the ACP, the better.
2. Inventory Turnover Ratio (ITO)
Tells how quickly inventory is converted to sales. The higher the ITO, the better.
3. Fixed Asset Turnover (FAT)
Tells how efficiently fixed assets are used to generate sales. The...

...Your Course Project
Financial Statement Analysis Project -- A Comparative Analysis of Oracle Corporation and Microsoft Corporation
Here is the link for the financial statements for Oracle Corporation for the fiscal year ending 2011. First, select 2011 using the drop-down arrow labeled for Year on the right-hand side of the page, and then select Annual Reports using the drop-down arrow labeled Filing Type on the left-hand side of the page.
You should select the 10k dated 6/28/2011 and choose to download in PDF, Word, or Excel format.
http://www.oracle.com/us/corporate/investor-relations/sec/index.html
Here is the link for the financial statements for Microsoft Corporation for the fiscal year ending 2011. You should select the 10k dated 7/28/2011 and choose to download in Word or Excel format.
http://www.microsoft.com/investor/SEC/default.aspx?year=2011&amp;filing=annual
A sample Project template is available for download in Doc Sharing. The sample project compares the ratio performance of Tootsie Roll and Hershey using the 2009 financial statements of Tootsie Roll and Hershey provided in Appendix A and Appendix B of your textbook.
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This course contains a course project where you will be required to submit one draft of the Project at the end of Week 5 and the final completed Project at the end of Week 7. Using the financial...

...FINANCIALRATIOS
Gross Profit to Sales (Gross Profit Ratio): profitability ratio that shows the relationship between gross profit and total net sales revenue.
Gross margin/Net sales
The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable.
Operating Expenses to sales (Operating ratio): shows the efficiency of a company’s management.
Operating expenses/Net sales
(Operating Exp=Cost of Good Sold + Total Exp – Depr – Interest)
The smaller the ratio, the greater the organization’s ability to generate profit if revenues decrease.
Net Earning to Sales (Profit margin): profitability ratio that measures how much out of every dollar of sales a company actually keeps in earnings.
Net income/Revenues or Net profits/Sales
Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20\% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales.
Current Ratio: A...

...Sales OR Net income/Sales
Net Profit Margin is a ratio of profitability that measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.
43938/528369 = 8.32%
This is above industry average of 7.23%.
Tootsie Roll’s profit margin is 8.32%, meaning the company has a net income of $.0832 for each dollar of sales.
Return on Assets:
Net Income/Total Assets
ROA is how much income is earned on each dollar invested. It will always be smallest compared to ROE & ROI. ROA is an indicator of how profitable a company is relative to its total assets, or how efficient management is at using its assets to generate earnings.
43938/857856 = 5.12%
This is below industry average of 8.15%.
Tootsie Roll’s ROA is 5.12% whereas the industry average is 8.15% meaning that Tootsie Roll needs to teach management how to make better choices to allocate its resources.
Return on Equity:
Net Income/Equity (total assets – total liabilities)
ROE is the amount of net income returned as a percentage of shareholders equity. It measures a company’s profitability by revealing how much profit a company generates with the money shareholders have invested.
When compared to ROI (return on investment) ROE cannot be below ROI; however, they can be equal if no long term debt exists. If these ratios are apparently wide...

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Professor:
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Introduction
Ratio analysis is a strategy used to aid in assessing the financial position of an organization. In healthcare finance, there are a lot of financialratios, which have multiple descriptions. This report focuses on roles and analysis of financialratios by category. In addition, it describes the comparison of financialratios and national norms in Baltimore hospital. Ratios used in financial conditions are primarily driven by comparative data from the organization and its competitors.
Role of financialratios
There are two principal uses of financialratios; to keep track of the hospital performance, and to make smart judgments concerning the performance of that hospital. The performance of a hospital is assessed using trend annalistic calculating the ratios on a per period basis. This also involves tracking the values over time. The analysis can be used to figure out spot trends that may be cause for alarm. These include, increasing average collection periods for receivables, or a decline in the firms liquidity position. Ratios serve as red flags for challenging issues, or as a point of reference for measurement...

...REPORT FINANCIALRATIOSFinancialratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financialratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.
SOURCES OF DATA FOR FINANCIALRATIOS
Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings
PURPOSE AND TYPES OF RATIOSFinancialratios can be classified according to the information they provide. The following types of ratios frequently are used: a. b. c. d. e. Liquidity ratios Asset turnover ratiosFinancial leverage ratios Profitability ratios Dividend policy ratiosFinancialratios allow comparisons
between companies between industries between different time periods for one company between a single company and its industry average
Ratios generally are not useful unless they are benchmarked against something else, like past performance or another company. Thus, the ratios...

...Interpreting Financial Results
FIN/571
July 22, 2013
Interpreting Financial Results
Liquidity: Current Ratio
Parrino, Kidwell, & Bates (2012) detail the current ratio as current assets divided by liabilities. The current ratio identifies a firm’s potential to pay short-term liabilities; higher liquidity is a good sign for potential creditors (Parrino et al., 2012). At the same time, however, the currentratio should not greatly exceed benchmarks of other competitors (Parrino et al., 2012). This could be indicative of mismanagement of current assets and less cash flow for investors (Parrino et al., 2012).
Current assets ($29,307,990) divided by current liabilities ($20,530,890) gives a current ratio for ABC SDN. BHD. of 1.43. American Airlines Cargo, a benchmark competitor of ABC SDN. BHD., provides current assets (in millions) of 6,838 divided by current liabilities (in millions) of 8,780; this totals to a current ratio of 0.78(AMR Corporation, 2010). Air Canada, an additional benchmark competitor, has a current ratio of current assets (in millions) of 3,445 divided by current liabilities (in millions) of 3,062 to total to a current ratio of 1.125 (Air Canada, 2010).
A benchmark analysis reveals that ABC SDN. BHD.’s current ratio is higher than other competitors. The statement of cash flows reveals a high...