Financial Ratio Analysis

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Business Finance

Description

Purpose of Assignment

The purpose of this assignment is to help students gain a better understanding of the financial statements used for corporate financial reporting and the key ratios used to make business decisions.

Assignment Steps

Select a Fortune 500 Company from one of the following industries:

  • Pharmaceutical
  • Energy
  • Retail
  • Automotive
  • Computer Hardware

Review the balance sheet and income statement in the company's 2015 Annual Report.

Calculate the following ratios using Microsoft® Excel®:

  • Current Ratio
  • Quick Ratio
  • Debt Equity Ratio
  • Inventory Turnover Ratio
  • Receivables Turnover Ratio
  • Total Assets Turnover Ratio
  • Profit Margin (Net Margin) Ratio
  • Return on Assets Ratio

Analyze in 1,050 words why each ratio is important for financial decision making.

Submit your analysis as well as your calculations.

Click the Assignment Files tab to submit your assignment.

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Explanation & Answer

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Financial decisions – HP Inc.
Introduction
HP Inc. is among the leading computer hardware and software companies globally. The
company offers computer hardware products, solutions, software, technologies, and services to
small-sized and medium-sized enterprises, individual consumers, large enterprises, health
centers, government customers, and educations sectors across the globe. Through its operating
segments, the company offers personal computing and access devices, printing and imaging
services and products, business information technology infrastructure which includes enterprise
storage and server technology, networking solutions and products, and technology maintenance
and support. The company also offers multi-vendor consumer services, comprising of
outsourcing, technology consulting, business and application process domains, and support
services. Additionally, the company provides software solutions and products such as big data
analytics, IT operations management, application delivery, and testing software. HP Inc. operates
in two segments; printing and personal systems segments. The personal systems division
provides consumer PCs, commercial PCs, thin clients, workstations, mobility devices and
commercial tablets, displays, retail POS systems, and other related software, accessories,
services, and support for consumer and commercial markets. The printing segment offers
commercial and consumer printer hardware, media, supplies, services and solutions, and

scanning devices. The segment also provides enterprise and LaserJet, printing and inkjet, 3D
printing solutions, and graphics (Yahoo Finance).
Financial analysis
Current ratio
The current ratio describes an efficiency and liquidity ratio which determines the capacity
of a business to settle its short-term debt obligations. The ratio is a critical indicator of liquidity
since a company’s short-term obligations mature within a year. In this regard, a company should
have enough current assets such as marketable securities and CCE that can be easily turned into
cash to pay off existing obligations as they become due. The current ratio is computed as below;

Current ratio =

Current assets
Current Liabilities

In this regard, the HP Inc. current ratio for 2015 can be given as below;

Total current assets
Total current liabilities
Current ratio

FY 2015
$
51,787,000.00
$
42,191,000.00
1.23

Observably, HP Inc. had a current ratio of 1.23 in the financial year 2015. The current
ratio is above 1 indicating that the corporation had more current assets relative to its existing
obligations. In this regard, the company was able to settle its current obligations prudently.
Quick ratio
The quick ratio refers to a liquidity ratio which indicates the capacity of a firm to settle its
current obligations with its quick assets. Company’s quick assets comprise of those assets that
can be turned into cash within 3 months. These include marketable securities, accounts

receivables, and cash. A company with more quick assets compared to its current obligations is
able to cover all its obligations comfortably. Quick ratio is computed as below;

The HP Inc. quick ratio can be given as follows;
FY 2015
$ 51,787,000.00
$
4,288,000.00
$
42,191,000.00

Total current assets
Inventories
Total current liabilities
Quick ratio

1.13

From the above, HP Inc. had a quick ratio of 1.13 in 2015. This shows that the
corporation had enough quick assets to co...


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