Financial Ratio Analysis

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Category: Business and Industry

Date Submitted: 09/29/2012 11:08 AM

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From the firm’s financial statements, refer to the ratios identified below. Compare those ratios with the industry averages and the firm historical averages, interpret the ratios, explaining any significant differences. When interpreting the ratio results, you should be clear to explain the relationships among the dependent and independent ratios. For example, the performance of ROA and ROE are explained by the components of the other ratios, expressed by the actual computations. For example, weak inventory or asset turnover negatively affects ROA and ROE, in comparison to the industry average. Do not rely on numbers alone or statements that tell little more than reading the numbers would reveal. You must explain why the numbers are as they are, without ambiguity.

The specific ratios you will work with are: 1. ROA, 2. ROE, 3. Current Ratio, 4. Total Debt to Total Assets, 5. Total Debt to Equity, 6. Inventory Turnover, 7. Receivables Turnover, and 8. Total Asset Turnover. Use the formulas given to you in Finance classes.

You will be graded on the logic of your interpretations, the organization of your answers, and the formal use of business English language.

Industry Averages Firm Historical Averages Current Year

ROA 6.0% 4.25% 6.25

ROE 7.3% 6.5% 6.77

Total Asset T/O 1.56 1.89 2.22

Debt/Equity 2.5 1.8 1.60

Debt/Assets .97 .64 1.38

Current 1.33 2.1 .92

Inventory T/O 1.77 2.29 2.41

Receivables T/O 4.2 5.46 5.90

Total asset turnover, inventory turnover and receivables turnover.

These ratios measure the efficiency of the company at using its assets. The higher the ratio the more efficient the company is. The firm has been very efficient at using its assets as the total...