Analyzing and Interpreting Financial Statements

In: Business and Management

Submitted By rszierk
Words 4611
Pages 19
Module 4

Analyzing and Interpreting
Financial Statements

QUESTIONS

Q4-1. Return on investment measures profitability in relation to the amount of investment that has been made in the business. A company can always increase dollar profit by increasing the amount of investment (assuming it is a profitable investment). So, dollar profits are not necessarily a meaningful way to look at financial performance. Using return on investment in our analysis, whether as investors or business managers, requires us to focus not only on the income statement, but also on the balance sheet.

Q4-2.B ROE is the sum of an operating return (RNOA) and a nonoperating return (the effective use of financial leverage – specifically, leverage multiplied by the spread). Increasing leverage increases ROE as long as the spread is positive. Financial leverage is also related to risk: the risk of potential bankruptcy and the risk of increased variability of profits. Companies must, therefore, balance the positive effects of financial leverage against their potential negative consequences. It is for this reason that we do not witness companies entirely financed with debt.

Q4-3. Gross profit margins can decline because 1) the industry has become more competitive, and/or the firm’s products have lost their competitive advantage so that the company has had to reduce prices or is selling fewer units or 2) product costs have increased, or 3) the sales mix has changed from higher margin/slowly turning products to lower margin/higher turning products. Declining gross profit margins are usually viewed negatively. On the other hand, cost increases that reflect broader economic events or certain strategic product mix changes might not be viewed negatively.

Q4-4. Reducing advertising or R&D expenditures can increase current operating profit at the expense of the long-term competitive…...

Similar Documents

Interpreting Financial Statements for Business Acquisition

...on health related circumstances of physical labour. other systems used include the CAD computer aided design which assist engineers in the design aspect of manufacturing. MPM (management process manufacturing) is popular at Daimler, is gathers the methods and technologies used in the manufacturing thus assisting the management accounting department with reducing work in progress. _ EXPLAIN WHAT IS MEANT BY STRATEGIC POSITIONING AND IDENTIFY THE STRATEGIES USED BY THE COMPANY TO ACHIEVE ITS POSITION the modern management strategies used include the merger between Daimler-Benz and Chrysler an equal competitor in 1998 the merger of the two corporations resulted the corp ranking to be the with in the world of automobile internationally. financial the merger was not pleasing with the profit remaining constant and the revenue increasing the idea that the management had in mind of a synergy cost savings proved to be a failure. In 2007 the two automakers in incurred a decline in the share price which led to demerger within the corp and also the abrupt change of direction from preservation to absorption mode following the disappointing first six-month earnings introduced another problem in the case of “merger of equals” as declared pre-merger. other reasons leading to the demerger was chrysler's rapid growth in inefficiency, the production cost were outstandingly sky rocketing and also lacking diversification of product associated with overcapacity which led to the lost of market......

Words: 777 - Pages: 4

Analyzing Financial Statement

...Mod 4-Gain Insights By Analyzing the Financial Statement This report is aimed at providing the financial analysis for Huntsman Corporation (Ticker symbol: HUN) through analyzing a series of key financial ratios including, but not limit to: ROE, RNOA, NOPM, NOAT, etc. in order to demonstrate the performance of Huntsman in a particular fiscal year (year ended Dec.2011). Please be advised that the Balance Sheet, Income Statement (here Huntsman addressed as “Consolidated Statement of Operation and Comprehensive (Loss) Income”) and the Statement of Cash Flow will also be enclosed in this report as appendixes for your reference. I will be first summarizing all the key financial indicators, which will be utilized to analyze and support this report, and have got them showed in the following table as you can see below: (NOTE: since the company itself didn’t specify, I will assume that the federal and state statutory tax rate is 38.5% for the calculation of NOPAT) (1) From the summarized form above, we can conclude that the current ration of Huntsman is: 8657/6881=1.25>1, which means a positive working capital, implying that Huntsman’s cash generated by “liquidating” current assets would be sufficient to pay liabilities. (2) The liabilities-to-equity ratio is: 6881/1776=3.87. From this index, we can actually see that Huntsman’s liabilities are almost 4 times the number of equity, and it’s much greater than the average index, 1, for publicly traded companies, indicating...

Words: 1352 - Pages: 6

Analyzing Financial Statements

...Analyzing Financial Statements HSM/260 Analyzing Financial Statements Calculating Ratios Current Ratio: 2003 Current ratio= Current assets Current liabilities Current ratio = 82,058.00 93,975.00 Current ratio = 0.87 Long-term solvency ratio: Long-term solvency ratio = Total assets Total liabilities Long-term solvency ratio = 359,863.00 259,979.00 Long-term solvency ratio = 1.38 Contribution ratio: Contribution ratio = Largest revenue source Total revenues Contribution ratio = 632,889.00 1,244,261.00 Contribution ratio = 0.51 Programs/expense ratio: Programs/expense ratio = Total program expenses Total expenses Programs/expense ratio = 945,579.77 1,316,681.00 Programs/expense ratio = 0.72 General and management/Expense ratio: Total general and management expenses General and management/Expense ratio = Total expenses General and management/Expense ratio = 371,101 1,316,681.00 General and management/Expense ratio = 0.28 Fund-raising/Expense ratio: Fund-raising/Expense ratio = Total fund-raising expenses Total expenses Fund-raising/Expense ratio =...

Words: 2032 - Pages: 9

Analyzing Financial Statements

...Analyzing Financial Statements Holly Regan HSM/260 May 16, 2014 Greg O'Donnell Analyzing Financial Statements COMPARATIVE RATIO | 2002 (A) | 2003 (A) | 2004 (A) | Current=Current Assets/Current Liabilities | 104,296/139,017 RATIO= .75 | 82,058/93,975RATIO= .87 | 302,902/337,033RATIO= .90 | Long-Term Solvency=Total Assets/Total Liabilities | 391,270/310,246 RATIO= 1.26 | 359,863/259,979 RATIO= 1.38 | 699,004/338,937 RATIO= 2.06 | Contribution=Largest Revenue Source/Total Revenue | 617,169/1,165,065RATIO= .53 | 632,889/1,244,261 RATIO= .51 | 1,078,837/2,191,243 RATIO= .49 | Program/Expense =Total Program/Total Expenses | 684,008/1,185,008 RATIO= .58 | 945,579/1,316,681 RATIO= .72 | 1,526,311/1,972,131 RATIO= .77 | General and Management Expense = Total General and Management Expenses/ Total Expenses | 351,000/1,185,008 RATIO= .30 | 371,101/1,316,681 RATIO= .28 | 445,819/1,972,131 RATIO= .23 | Revenue/Expense= Total Revenues/Total Expenses | 1,165,065/1,185,008RATIO= .98 | 1,244,261/1,316,681 RATIO= .94 | 2,191,243/1,972,131 RATIO= 1.11 | After reviewing the XYZ Corporation’s financial statements of the last three fiscal years there is evidence that the organizations finances have improvement significantly in three ratio areas where the remaining ratios were fine. First problem area is the programs ratio as it had started off with violating the standard ratio with .58 percent where .60......

Words: 1642 - Pages: 7

Analyzing and Interpreting Data

...Analyzing and Interpreting Data Debbie Horner, HR manager of BIMS, had several flaws that made the majority of the result for the first survey questionable. She found out that some question should not ask, and other questions were worded awkwardly. The numbers of errors the happened when keying data led to a reduced accuracy in the results. In future Debbie will pretest the sample instrument before issuing it to workforce. Debbie created a second improved survey effort that was better planned and marketed. Barbara Tucker, general manager of BIMS at the Douglas Medical Center approved the request, while the rest of the top management team was disappointed. In the second survey Debbie circulated it among the senior management team, inviting each person to be sure the survey completed. In the individual work a number of suggestions made as well as adding new items. These changes were included in the survey design. Debbie solicited five craft workers to voluntarily pretest it. These five were all on noncritical medical leave, so they were able to comfortably conduct the review. Debbie suggested interviewing the employees who’s already left the organization by asking them “why?” Debbie’s goal was to use the data to create a regression statement that could be used to predict future resignations. Combine finding Going over the issues that rose in part two of the BIMS, we can see that some changes were administered on the second survey. The main issue was the increase of the......

Words: 999 - Pages: 4

Analyzing and Interpreting Data

...Analyzing and Interpreting Data Leontyne Powell, Omyni, Kahlil Jackson Harrell QNT 351 February 26, 2015 Professor Jonte Lee Analyzing and Interpreting Data Introduction The purpose of this report is to analyze both Ballard Integrated Managed Services, Inc. initial survey and survey B workforce. The first survey results failed to reveal the problems within the workforce that BIMS needs to identify and solve the issues of low morale and high turnover with the organization. This report will analyze B survey, explain the results, and provide a recommendation for the problems uncovered the analysis of BIMS workforce. This report will define statistics and introduce how to analyze and interpret data. The case study used in this report is BIMS LLC, a cleaning, and housekeeping company. This report will present how number data and graphing is used in analyzing data. This report will present an explicit hypothesis. This report will conclude with precise resolutions that will assist the company to move onward to a superior company. Statistics is the science of accumulating and assessing numerical evidence in an enormous measure, especially for the determination of reducing proportions in total from those in a descriptive sample. There are two types of statistics, and one is called descriptive and the other inferential. Descriptive statistics is a technique used to organize, summarize, display facts in a useful manner. Inferential statistics is the procedure used to......

Words: 1186 - Pages: 5

Interpreting Financial Statements

...INTERPRETING FINANCIAL STATEMENTS Financial ratios can be defined as indicators of the performance of a company in a given period or comparing two or more periods and also comparing the performance of the company with competitors to evaluate the overall financial situation of both companies. For this review we will compare two periods of Walmart Inc., and one period of Target to revise the financial performance of those two companies, the ratios are: Current ratio Walmart Target 2014 2013 2013 Current Assets 61,185,000 59,940,000 16,388,000 Current Liabilities 69,345,000 71,818,000 14,031,000 0.88 0.83 1.17 We can see that Walmart have current ratio below one meaning that all existing current assets will not be sufficient to pay off the current debt. Target have a better ratio than Walmart it means they have 1.17 of current assets of every dollars to pay off their current liabilities. Quick ratio Walmart Target Current assets-inventory 16,327,000 16,137,000 8,485,000 Current liabilities 69,345,000 71,818,000 14,031,000 0.24 0.22 0.60 This ratio shows that Walmart have only 0.24 to pay every dollar of current debt, it means it does not include the inventory to pay off the current liabilities. In this case the ratio is better than Walmart even though is not at least equals to 1 it is in better shape than Walmart having 0.60 compares to 0.22 in the year 2013. Inventory Turnover Walmart Target Cost of......

Words: 1052 - Pages: 5

Analyzing Financial Statements

...21 1 2 3 4 5 Chapter Twenty-One Analyzing Financial Statements After completing this chapter, you should be able to: Explain the objectives of financial statement analysis. Describe and use the following four analytical techniques: horizontal analysis, trend analysis, vertical analysis, and ratio analysis. Explain the importance of comparisons and trends in financial statement analysis. Prepare and interpret common-size financial statements. Define and compute the various financial ratios discussed in the chapter. CONTEMPORARY INTERIORS TO GO NATIONAL Chicago, IL—Contemporary Interiors, a Chicago tradition in Scandinavian furniture and contemporary design, has announced a decision to go national. Although Contemporary Interiors has opened stores throughout the Midwest in recent years, the company has remained a regional business with the bulk of its sales in the greater Chicago area. Yesterday, however, a company spokesman announced that Contemporary Interiors’ Board of Directors had decided the time was right to make the next move. Marc Janson, spokesman for the firm’s president and CEO, pointed to the strong economy and consumer confidence as being key to the decision. “Disposable income is up, and we’re seeing that in our business,” said Janson. “Even more important, though, is our company’s strong financial position. The analysts tell us that our financial statements look good. Our working capital, inventory turnover, return on assets, and so forth are all strong.......

Words: 14740 - Pages: 59

Interpreting Financial Statements

...Interpreting Financial Results FIN 571 May 18th, 2015 Eric Hohl Apple Inc. Apple Inc. is one of the most reputable electronic companies on the market today. Their competitors are Samsung, Motorola, and LG. Of those three Samsung is one of their most important competitor. Looking over the financial statement from 2011 to 2014 they have been seeing a huge increase in revenue, cost of goods sold, their gross profit, and operating income. They began to see an additional expense in 2013 and 2014. Apple Inc. seen a huge loss in 2014 on sales of investments. The other areas that Apple Inc. began to see a huge trend would be EBT, Income Tax Expense, Earnings from Continuing Operations, and Net Income. According to their financial statements they are above their industry competitors in return on assets, gross margin, EBITDA Margin, Growth over Prior Year, and Diluted EPS before Extra. The areas where they were lower in industry comparison would be return on equity, return on capital, SG&A Margin, Accounts Receivable Turnover, Fixed Assets Turnover, Inventory Turnover, Current Ratio, Quick Ratio, Total Liabilities/Total Assets, Receivables, Inventory over prior year, Capital Expenditures, and Levered Free Cash Flow. In some of these area of inventory comparisons from Apple Inc. Samsung was actually holding up better in their receivables, Capital Expenditures, Inventory, and Return on Equity. Apple Inc. Financial Statement |Currency in ......

Words: 740 - Pages: 3

Acc 400 Week 4 Team Assignment – Interpreting Financial Statements Report

...ACC 400 Week 4 Team Assignment – Interpreting Financial Statements Report Get Tutorial by Clicking on the link below or Copy Paste Link in Your Browser http://hwguiders.com/downloads/acc-400-week-4-team-assignment-interpreting-financial-statements-report/ For More Courses and Exams use this form ( http://hwguiders.com/contact-us/ ) Feel Free to Search your Class through Our Product Categories or From Our Search Bar (http://hwguiders.com/ ) Learning Team B 1234 Phoenix Street Phoenix, AZ 4321 17 May 2010 Mrs. Lydia Sneed, CEO Learning Team B 1234 Phoenix Street Phoenix, AZ 4321 Dear Mrs. Sneed Further to your request, we hereby attach our report analyzing the Coca-Cola Company and PepsiCo, Inc. As outlined in your request, we have paid particular attention in our analysis to the ratios and commentaries derived from the ratios, useful information outside the annual report for investors, which company is more profitable, and preferable company stock. This report provides detailed financial ratios for Coca-Cola Company and PepsiCo, Inc. in addition to our observations of such ratios. Our analysis reveals PepsiCo, Inc is more liquid but uses a higher percentage of debt financing than The Coca-Cola Company. Therefore, The Coca-Cola Company proves more solvent than PepsiCo. However, PepsiCo uses assets more efficiently and the return on stockholders’ equity is higher than Coca-Cola. We thank you for affording us the opportunity to work......

Words: 5084 - Pages: 21

Analyzing and Interpreting Data

...Analyzing and Interpreting Data Jonnerious Gilder, Darryl Hardamon, Tenisha Holman, Simona Lewis, Shawanna Nelson, and Christine Norris QNT/351 July 22, 2015 Huei Holloman Analyzing and Interpreting Data Describe the instrument used for data collection. Data instruments apply “to the levels of measurement of your independent variables and dependent variable” (Lind, Marchal, & Wathen, 2011, p. 5). Survey is a quantitative research approach, not a data instrument. However, “what a scale means and what we can do with it depends on what its numbers represent” (Davis Education, 2015, para. 1). Statistics can be classified into four types or levels, which are nominal, ordinal, interval, and ratio (Lind, Marchal, & Wathen, 2011). Nominal is the easiest of them all. Nevertheless, the ratio is the most complicated of the four type of levels of measurement. Nominal Nominal is hardly measurement. “It refers to quality more than quantity” (Davis Education, 2015, para. 2). A nominal level of measurement is a concerned with differentiating by name. For example, 1 equals male, 2 equals female. Even though, when are using the numbers 1 and 2, they do not symbolize quantity. The two category of 0 and 1 used for the smart cell phone is a nominal level of measurement. They are categories or classifications. “Nominal measurement is like using categorical levels of variables” (Davis Education, 2015, para. 2). Ordinal Ordinal means the order in measurement. “An ordinal......

Words: 697 - Pages: 3

Hsm260 Analyzing Financial Statements

...Analyzing Financial Statements Kristina M Spencer HSM260 May 29, 2011 Erin Akins Analyzing Financial Statements Current Ratio 2002 Current Ratio = Current Assets/Current Liabilities 1,165065.00/1185008.00 = 0.983 2003 Current Ratio = Current Assets/Current Liabilities 1,244,261.00/1,316,101.00 = 0.945 2004 Current Ratio = Current Assets/ Current Liabilities 2,191,243.00/1,972,131.00 = 1.111 Long Term Solvency 2002 Long Term Solvency = Total Liabilities/Total Assets 1185008.00/1165065.00 = 1.017 2003 Long Term Solvency = Total Liabilities/ Total Assets 1316681.00/1244261.00 = 1.058 2004 Long Term Solvency = Total Liabilities/ Total Assets 1972131.00/2191243.00 = 0.900 Contribution Ratio 2002 Contribution Ratio = (Contribution Margin/Sales) 100 (506788.00/617169.00)100 = 82.11 2003 Contribution Ratio = (Contribution Margin/Sales) 100 (579824.00/632889.00)100 = 91.61 2004 Contribution Ratio = (Contribution Margin/ Sales) 100 (1004874.00/1078837.00)100= 93.14 Programs and Expense Ratio 2002 Programs and expense Ratio = (Total Expense/Customers) 100 (1185008.00/5962)100 = 19876.01 2003 Programs and expense Ratio = (Total Expense/Customers) 100 (1316681.00/6821)100 = 19303.34 2004 Programs and expense Ratio = (Total Expense/Customers) 100 (1972131.00/11822)100 = 16681.87 General and Management and Expense ratio 2002 General and Management and Expense ratio = (Other + Management/ Customers)......

Words: 1363 - Pages: 6

Analyzing Financial Statements

...Analyzing Financial Statements Rebecca Hunter HSM/260 January, 29, 2012 Jan Bridgeford-Smith Analyzing Financial Statements Ratios | 2002 | 2003 | 2004 | Current ratio |  104,296/139,017=0.75 |  82,058/93,975=0.87 | 302,902/337,033=0.89 | Long-term solvency ratio |  391,270/310,246=1.26 |  359,863/259,979=1.38 |  699,004/338,937=2.06 | Contribution ratio |  617,169/1,165,065=0.5 |  632,889/1244261=0.51 |  1,078,837/2,191,243=0.49 | Program/Expense ratio |   834008.20/ 1,185,008=0.58 |  795,579.77/1,316,681=0.60 | 1,376,311.72/1,972,131=0.70 | General/Mgmt. ratio |  351,000/1,185,008=0.29 |  371,101/1,316,681=0.28 |  445,819/1,972,131=0.23 | Revenue/Expense ratio |  1,165,065.00/1,185,008.00=0.98 |  1,244,261/1,316,681=0.94 |  2,191,243/1,972,131=1.11 | Fixed cost | 150,000+24,000=174,000 | 150,000+24,000=174,000 | 150,000+24,000=174,000 | Variable cost | 417,004+125,101.20+117,903+351,000=1,011,008.20 | 520,069+171,622.77+79,888+371,101=1,142,680.77 | 915,787.20+320,525.52+115,999+445,819=1,798,130.72 | Break Even point | | | | Using the RATIOS, write an evaluation of the organization’s financial picture over the 3-year period specified in Appendix D. Be sure to indicate which ratios support your conclusions. The picture that I get from the ratios is that the company is that all the ratio’s go up over the years except the general management which went down, the revenue expense ratio going up is good it means that the company has more coming......

Words: 512 - Pages: 3

Analyzing Financial Statements

...“SAC’s Performance Analysis for 2010 and 2011” To: Dakota Cole Chief Executive Financial Officer (CEFO) From: Business Financial Analyst Date: Re: SAC’s Performance Analysis for 2010 & 2011 Message: As part of our efforts to ensure that we get closer and closer to our main objective of expanding our operations, I have performed a Performance Analysis for both the 2010 and 2011 fiscal periods (Colorado Technical University Online, 2012). The Managerial Accounting information collected helps the internal users to use strategic planning, and operate efficiently while evaluating the performance of all areas within the company (Atkinson, Kaplan, Matsumura, & Young, 2012). This allows them to have a better handle on the operations. Thus, allowing for a more informed decision making process (Atkinson, Kaplan, Matsumura, & Young, 2012). Previously, the managerial accounting financial information was just expressed in monetary denomination (Accounting for Management, 2012). Now it has led to include any information that is considered valuable operational or physical information (Colorado Technical University Online, 2012). The performance of a new product, and how well-trained an employee is or how satisfied a customer are all good examples of the nonfinancial information needed to make better decisions (Colorado Technical University Online, 2012). The amounts of......

Words: 4635 - Pages: 19

Analyzing Financial Statements

...105.00 Formula for the Break-even point PX=A + BX P= Total agency revenue divided by total number of customers $1,165,065/5,962=$195.42 income per customer X= break-even point A=$642,903.00 B= Total variable cost divided by the total number of customers $542,105/5,962=$90.93 variable cost per client 195.42x=642,903 + 90.93x 104.49x=642,903 X=6,152.77 or 6,153 clients Analyzing Financial Statements Year 2003 Fixed Costs=Rent and Utilities + Telephone + Management + Other $150,000+24,000.00+371,101.00+79,888.00=$545,101.00 Variable Costs= Payroll and Benefits + Supplies $520,069.00+ 171,622.77=$691,691.77 or $691,692.00 Formula for the Break-even point PX=A + BX P= Total agency revenue divided by total number of customers $1,244,261.00/6821=$182.42 income per customer X= break-even point A=$545,101.00 B= Total variable cost divided by the total number of customers $691,692.00/6821=$101.41 variable cost per client 182.42x=545,101.00 + 101.41x 81.01x=545,101.00 X=6,152.77 or 6,728.81 or 6,729 clients Analyzing Financial Statements Year 2004 Fixed Costs=Rent and Utilities + Telephone + Management + Other $150,000+24,000.00+445,819.00+115,999.00=$735,818.00 Variable Costs= Payroll and Benefits + Supplies $915,787.20+ 320,525.52=$1,236,312.72 or $1,236,313.00 Formula for the Break-even point PX=A + BX P= Total agency revenue divided by total number of customers $2,191,243.00/11822=$185.35 income per customer X=......

Words: 387 - Pages: 2

The Innocents | Atividade Paranormal: Marcados pelo Mal (Paranormal Activity: The Marked Ones) 2014 | Linen Tops