Financial Analysis and Operating Ratios
Assessment: Case Study of Financial Analysis and Operating Ratios (15%)
In this assessment you will use the income statement and balance sheet information identified below and evaluate the firm's financial condition based on three profitability ratios: a) Total Margin, b) Return on Assets and c) Return on Equity. You will also conduct a DUPONT ANALYSIS using the information on the financial statements. You will be graded based on your understanding of the 3 ratios analyzed and the DUPONT ANALYSIS, the accuracy of your calculations, the validity of you conclusions and your ability to clearly communicate your analysis. To complete this assignment, follow these steps.
- Review Chapter 17 in the Gapinski textbook and Chapter 14 in the Nowicki textbook.
- Examine the Statement of Operations and Balance Sheet provided as part of Problem 17.4 at the end of Chapter 17 in Gapenski textbook. Attached here: Problem 17-4
- From this financial information calculate the three profitability ratios: a) Total Margin, b)Return on Assets and c) Return on equity and conduct a Dupont Analysis based on the financial statement information above
- Write a short paper in the following format:
Cover page with your name, class/section and instructor’s name
- For each ratio, in a paragraph: define the ratio, explain what it measures, show your calculation and explain what the ratio tells you about your organization’s health and any limitations of using the ratio.
- Explain the importance of a Dupont Analysis
- Write a conclusion about your organization’s financial condition based on your ratio analysis. Use Industry benchmarks provided in Problem 17.4 of Gapenski.
- Describe and discuss the use of operating indicators in additional to financial ratios in measuring financial performance.
You will be graded base on the following rubric:
90-100 | 80-89 | 70-79 | 0 Points |
The student demonstrates a thorough understanding of the meaning of the ratios measured and their applicability to the organization being analyzed. | The student demonstrates a reasonable but not complete understanding of the meaning of the rations chosen and their applicability to the organization being analyzed. | The student demonstrates a limited understanding of the meaning of the ratios chosen and their applicability to the organization being analyzed. | The student does not demonstrate an understanding of the meaning of the ratios or how they can be used to assess the organization’s financial condition. |
All of the ratios are calculated accurately | Only 2 of the ratios are calculated accurately | Only 1 of the ratios are calculated accurately | None of the ratios are calculated accurately. |
The student draws accurate conclusions for each of the ratios and for the overall financial health of the organization. | The student draws some accurate conclusions for each of the ratios and for the overall financial health of the organization. There are a few mistakes | The student draws few accurate conclusions for each of the ratios and for the overall financial health of the organization. There are several mistakes | The student’s conclusions for each of the ratios are inaccurate and the overall conclusion on the financial health of the organization is not valid. |
Writing quality: Writes clearly, concisely, and with few errors. Easy to understand. | Writing quality: Writes with some errors but the paper can be readily understood. | Writing quality: paper includes numerous errors. Requires some effort to understand. | Writing quality: The paper is poorly written and is difficult to understand. |
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