Strategic management financial analysis

User Generated

kvnbzrvzrv

Business Finance

Description

Please calculate at least three ratios of Walmart listed in financial analysis file. (you could pick any three ratios)

  1. list the ratios you picked
  2. list the equation you used
  3. list which year you calculated
  4. submit in one word document

Attached is the instruction on how to calculate the financial ratios.

Unformatted Attachment Preview

Financial Analysis Here are some recommended outside sources to find income statement, balance sheet, and cash flow: ps. It is easier for you to find more information about public cooperation than private company. 1. Https://finance.yahoo.com Search the company Click tab of financials 2. Go the company’s website (I am using Walmart as an example): Harrison, Horngren, Thomas. 2013. Fianancial Accounting (9e) Brigham, E. F., & Houston, J.F. 2007 Fundamentals of Fianancial management (11e) Find the tab of investors Annual Report! Liquidity Ratio Current Ratio = Current Assets/Current Liabilities • • • Will the firm be able to pay off its debts as they come due in the coming year? A higher current ratio indicates a stronger financial position Healthy Ratio (Rule of Thumb): 2 Quick Ratio = (Current Assets-Inventories)/Current Liability • • Firm’s ability to meet its short-term obligations without relying upon the sale of its inventories. A quick ratio of .9 to 1 is acceptable in most industries Activity Ratio (how effectively the firm is managing its assets) Inventory Turnover = Sales/Inventories • • • • • How many times the asset is turned over during year Whether a firm holds excessive stocks of inventories and whether a firm is selling its inventories slowly compared to the industry average The faster inventory sells, the sooner cash comes in Too high a value can mean that the business is not keeping enough inventory on hand (strive for the most profitable rate) COGS (cost of goods sold)/average inventory (inventories are usually recorded at cost) Days Sales in Inventory (DSI) = 365days/Inventory Turnover Harrison, Horngren, Thomas. 2013. Fianancial Accounting (9e) Brigham, E. F., & Houston, J.F. 2007 Fundamentals of Fianancial management (11e) • • • How many days’ sales are tied up in inventories Average length of time that inventory sits before it is sold How fast the firm can sell its products Accounts Receivable Turnover Ratio = Sales/ Accounts Receivable • • Ability to collect cash from customer How many times during the year average receivables were turned into cash Days’ Sales Outstanding (DSO) =365/receivables turnover • How many days’ sales remain in Accounts Receivable Fixed Asset Turnover = Sales/Fixed assets • • How effectively the firm uses its plant and equipment (Does the firm us its fixed assets as intensively as other firms in its industry?) Large variances between market value and book value (inflation) tend to inflate the Fixed Assets Turnover, which could cause an older company to appear more efficient than a younger company, but these ratio differences would be more reflective of when the assets were acquired rather than the inefficiency of the younger firm Total Asset Turnover = Sales/Total Assets • • How effectively the firm uses all its assets It measures the company’s ability to generate sales based on its assets Leverage Ratio (ability to pay total liabilities) The Debt Ratio=Total Liabilities/Total assets • • • Proportion of assets financed with debt The higher the debt ratio, the greater the pressure to pay interest and principal The lower the debt ratio, the lower the company’s credit risk The Times-Interest-Earned Ratio= Earnings before interest and taxes/Interest changes • • • Relate income to interest expense Measures the number of times operating income can cover interest expense Some company has no interest-bearing debt! Profitability Ratio Gross (Profit) Margin = (Sale-Cost of goods sold)/Sales • The total margin available to cover operating expenses and yield a profit Operating Profit Margin = Earning s before interest and taxes (EBIT)/Sales • • Measures the % of profit earned from each sales dollar in a company’s core business operations Persistently high rate is an important determinant of earnings quality Harrison, Horngren, Thomas. 2013. Fianancial Accounting (9e) Brigham, E. F., & Houston, J.F. 2007 Fundamentals of Fianancial management (11e) • Keeping operating cost as low as possible, given the level of desired product quality and customer service Net Profit Margin = Net Income/Sales • • • • Measures the profit per dollar of sales The higher the %, the more profit is being generated by sales dollars Sub-par results generally occur because costs are too high or inefficient operations. If a firm sets a very high price on its products, it may get a high return on each sale but not make many sales. Return on Total Assets = Net Income/Total Asset • Sub-par results may reflect financing strategy Return on Common Equity = (Net Income-preferred dividends) /Common Equity • • How much income is earned for every $1 invested Stockholders expect to earn a return on their money, and this ratio tells how well they are doing in an accounting sense. It is considered the “bottom-line” accounting ratio. Basic Earning Power Ratio= EBIT/Total assets • BEP shows the raw earning power of the firm’s assets, before the influence of taxes and leverage. Market Value Ratio Price earning ratio = market price per share/earnings per share • • • It shows the market price of $1 of earnings. Earnings per share = (net income-preferred dividends)/ number of shares of common stock outstanding (earnings available to the owners of common stock) P/E ratios are higher for firms with strong growth prospects and relatively little risk Harrison, Horngren, Thomas. 2013. Fianancial Accounting (9e) Brigham, E. F., & Houston, J.F. 2007 Fundamentals of Fianancial management (11e)
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Here is the answer. Thanks

Profitability Ratios of Walmart Store Incorporation
The gross profit margin ratio, net profit margin ratio, and return on assets (ROA) are
three ratios widely used to assess and evaluate the profitability as well as profit generation
capacity of an organization (Vishwanath, 2007). The profitability condition of Walmart Store
Incorporation can be assessed from th...


Anonymous
Very useful material for studying!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags