Campbellsville University IBM Financial Statement Ratios Report

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Campbellsville University

Description

The purpose of the second part of the comprehensive project is to compute the financial statement ratios. Based on the company IBM, complete the following:

A.    Compute the following ratios for two years. You may use Excel to compute your ratios.

1.     Debt ratio

2.     Gross profit margin

3.     Free cash flow

4.     Times interest earned

5.     Accounts receivable turnover

6.     Inventory turnover

B.    Prepare a DuPont Analysis of ROE for two years, including computations of

1.     Return on Sales

2.     Asset Turnover

3.     Return on Assets

4.     Financial Leverage

5.     Return on Equity

C.    Evaluate the ratio trends. Your evaluation should be consistent with your calculations for the two (2) years.

Write a 4-6 page report evaluating trends in all of the above ratios. Discuss whether your company's profitability, efficiency, liquidity, and solvency are improving or deteriorating. Suggest ways the company can improve the ratios that show problems.

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Explanation & Answer

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NAME
INSTITUTION
DATE

RATIO

1

DEBT RATIO

=0.35;
2

FORMULA

TOTAL DEBT/TOTAL ASSETS

2015

744,783/2099083

1200678/2868900=0.42
GP MARGIN

GROSS

PROFIT/TURNOVER
3

2014

1512206/3084370=48.70%;

FREE CF

1905547/3963313=48.08%

OPERATING CASH FLOW
- CA;ITAL EXPENDITURE

4.

TIMES INTEREST
EARNED=

EXPENSES
5.

EBIT/INTEREST

353,995/5335=66.35;

408,540/14628=27.93

AR TURNOVER

= TOTAL
URNOVER/AV.RECEIVABLES=3084370/332,333+433638/2=10.18;3963313/248329+332333
/2=13,65
6. INVENTORY TURNOVER
=COGS/AVERAGE
INVENTORY=

1572164/536714+469006/2=3.13;

7. DUE PONT ANALYSIS=

2057766/536714+783031/2=3.12

ROE = RETURN ON SALES X ASSET TURNOVER X RETURN ON ASSETS X
FINANCIAL LEVERAGE X RETURN ON EQUITY = FOR 2014 = 11 X 1.47 X 0.16 X 1.03
X 0.15 = 0.40
= FOR 2015 = 9.76 X 1.38 X 0.13 X 1.06 X 0.14 = 0.26
8. RETURN ON SALES
= OPERATING PROFIT BEFORE TAX/NET SALES= 342,210/3084370 = 11%;
386685/3963313=9.76%
9. ASSET TURNOVER=TURNOVER/TOTAL
ASSETS=3084370/2095083=1.47; 3963313/2868900=1.38
10. RETURN ON ASSET=EARNINGS BEFORE TAX/ASSETS = 342210/2095083=0.16;
386,685/2868900=0.13
11. FINANCIAL LEVERAGE=
EBIT/EBT=

353955/342210=1.03;

408547/386685=1.06

12. RETURN ON EQUITY=
NET INCOME/SHAREHOLDERS EQUITY =
208042/1350300=0.15;

232573/1668222=0.14

DEBT RATIO = WEEK; GP RATIO = STRONGER; TIMES INTEREST RATIO =
STRONGER IN 2014 THAN 2015;ACCOUNTS RECEIVABLES TURNOVER IS STONGER;
INVENTORY TURN OVER IS WEEK;

NOTE: GP = GROSS PROFIT; CF = CASH FLOWS; AV. AVERAGE; AR =AVERAGE
RECEIVABLES;COGS=COST OF GOODS SOLD; AR =ACCOUNTS RECEIVABLE


1

STUDENT NAME
INSTITUTIONAL AFFILIATION
DATE

2

INTRODUCTION
The GAAP rules enable companies to draw up three financial statements: a revenue
statement, a balance sheet, and a cash flow statement. Financial statements are records of a
company, individual, or any other entity's economic activities. The financial statements of the
companies are based on generally accepted accounting principles (GAAP). The Financial
Accounting Standards Committee shall lay down the rules for preparing the financial statements
(FASB). Standard rules ensure that a company's financial statements accurately reflect the
company's financial status. Companies generally submit three accounts. The information in these
statements is significant for investors and public regulatory agencies and how this information
varies over time.
BODY
Although solvency and liquidity are terms that relate to a company's financial health, there
are considerable differences between the two concepts. As referred to in the financial world, a
company's ability to meet its long-term financial obligations is its solvency. The liquidity for
lending refers to the ability of a company to fulfill short-term commitments and the ability of a
company to sell assets to raise funds rapidly. Quick Ratio
Quick ratio = (Current assets – Inventories) / Current liabilities
OR
Quick ratio = (Cash and equivalents + Marketable securities + Accounts receivable) / Current
liabilities
The liquidity ratio of a company demonstrates its ability to repay existing debts and assets.
Corporate liquidity ratios, including hyper accounts, reduced administrative cost, and debt paid,
can be increased in many respects. If you follow this path, remember that a high liquidity ratio is

3

not always desirable. A company's liquidity is determined by the distinction between liabilities
and conditional reserves between existing assets. Market analysts and prospective investors may
use this ratio to determine the appropriate stability and financial viability of the company's debts
and outstanding liabilities.
A low liquidity ratio may indicate financial difficulties for a company. On the other hand,
a high liquidity ratio can prioritize growth and growth to the effective use of capital. The current
ratio and the quick ratio are two commonly examined liquidity ratios. The current balance
determines the ability of a company to fulfill its short-term obligations by comparing existing
assets to liabilities. This is a short-term measure of liquidity that companies must maintain to meet
short-term bonds and costs.
The quick ratio is another significant liquidity r...


Anonymous
Just what I needed…Fantastic!

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