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Running head: FINANCIAL ANALYSIS
Financial analysis (case study)
Financial ratios are used to predict financial muscle of the company. They are derived
from financial statements including the statement of compressive income, statement of financial
position (balance sheet) and statement of owners’ equity among others. Financial ratios compare
figures in the financial statements to indicate whether the financial condition is favorably
unfavorable (P e n m a n , 2 0 1 5 ). Denver Furniture Corp. is concerned that it is not exploiting
full potential in its production. The company’s management resolves to offer a new line of
furniture. However, the process of introduction of the new product into the market brings change
in total sales and net income. Ideally, introduction of new product lead to reduction in sales
volume of the product of the same producer. This is called cannibalization.
Using the calculations of financial ratios, based on the proposal of the new product, the
sales volume decreases from $60,000 thousands to 50,000 thousand. Also, net income is
projected to decrease from $13,000 thousand to $12,000 thousands. This is mainly influenced by
the change in customer demand. Moreover, the average total assets remain constant when and
after cannibalization is applied. By introduction of new products in Denver's operations, the vice
president of the company is optimistic that the company will gain the increase in profits as well
unitize its plants and resources maximally. According to the vice president, the new product
could also attract new clients into purchasing of the new product. Using decisions of the vice
president and his team, the findings...