Ratio Analysis as Effective Tool of Financial Status Paper

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Business Finance

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Part 1
Deliverable Length: 400-600 words
Jessica Madison has been working as an accounting intern for ABC for the past 3 years. Jessica has recently completed her BA degree and aspires to become a financial analyst at ABC. You have agreed to set aside a time each week to help Jessica become more familiar with various investment management fundamentals.
Explain the following to Jessica:
* How does ratio analysis serve as an effective tool to assess the current and future financial status of firms? Describe the limitations of ratio analysis.
* Explain the odd-lot theory and how it acts as a market predictor.
* How does a fundamental type of analysis, such as ratio analysis, differ from a technical analysis?

Part 2
Deliverable Length: 15-20 PowerPoint slides; 100-200 speaker notes per slide
It is assumed that you have been assigned the task of locating and presenting to a hedge fund portfolio manager in one convincing PowerPoint presentation a U.S. publicly-traded company's common stock that you think is undervalued and a U.S. publicly-traded company's common stock that you think is overvalued.

Please use the library and other available resources to locate these stocks. You may need to locate the 10-Q and 10-K statements for the companies. These reports can be retrieved on the EDGAR database of the Securities and Exchange Commission website at http://www.sec.gov/.

Create a PowerPoint file of 15 to 20 slides that consists of the following elements:

Name of the U.S. publicly-traded company's common stock that you think is undervalued
Name of the U.S. publicly-traded company's common stock that you think is overvalued
Description of the companies
Rationale of why you think the stock is undervalued
Rationale of why you think the stock is overvalued
The percentage you think the stock is undervalued
The percentage you think the stock is overvalued
An analysis of each company's management team

For each of the two companies:
* The most current common stock price
* The stock's 52-week highs and lows
* The stock's beta
For each of the two companies, the following financial ratios:
* Quick ratio
* Current ratio
* Inventory turnover ratio
* Debt ratio
* Debt-to-equity ratio
* Times interest earned ratio
* Return on equity
* Return on assets
* Gross profit margin
* Net profit margin
* P/E ratio
* P/B ratio
* EPS
For each of the two companies, the following estimates for the upcoming 12 months:
* Revenue growth rate
* EPS growth rate

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Explanation & Answer

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Running head: INVESTMENT ANALYSIS

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Investment Analysis
Name
Course
Professor
Date

INVESTMENT ANALYSIS

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Investment Analysis

Ratio Analysis as Effective Tool of Financial Status
The ratio analysis serves as an effective tool in evaluation the current and future financial
status of the firm. Through the analysis, it is possible to execute a comparison of the data
received from the statements of finance with the aim of getting general overview of the results,
the position of financial statements of the firm as well as liquidity position. It is effective and
useful given that it can be relied upon by outsiders such as lenders, credit analysts and stock
analysts. These group of outsiders are in a position to come up with understanding of the
financial results and also know the business position as per the financial statements given. The
ratios can be applied as indicators for the positive and negative financial trends hence important
for both the long and short term. Also, through them, one can easily compare the financial state
of a business against another one within an industry or between industries. For operations of a
business, one of the important tools that must be checked is in regards to turnover and efficiency.
Both the expenditures incurred in operations and the ratios of turnover are very important in
determining the level of efficiency of a business when using the assets and in management of the
liabilities (Edum-Fotwe, Price & Thorpe, 1996). Through the extent of ratios, high or low, it
becomes possible to tell whether a business is managing expenses successfully or not. Any
management would be interested in knowing the liquidity position of their firm and ratio analysis
allows this to happen. Through the cash and liquidity rations, a firm can examine if it is possible
for them to invest in the capital assets or even in the long-term business growth. Also, the current
and working capital ratios are important when one is interested in finding out if a business has
sufficient liquidity to pay for the daily operations and the short-term debt expenses (EdumFotwe, Price & Thorpe, 1996).

INVE...


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