Short Case

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Economics

Description

Write a paper on the following:

  • In your industry, what are some commonly used financial ratios?
  • Pick one company of your choice within your industry and calculate the ROA and ROE for the company. Again, the choice of company should be different from the company you will use for your final project and different from the company you chose in the Module One discussion. You may use the Yahoo! Industry Summary to help you in choosing a company.
  • Assess the profitability of the company and summarize your findings.
  • In general, what are the limitations of financial ratios? Which limitations apply to your industry?

For additional details, please refer to the Case Study One Guidelines and Rubric document.

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FIN 685 Case Study One Guidelines and Rubric Financial ratio analysis is used for planning, control, and performance evaluation purposes. Extracting the correct and appropriate information from a financial statement is the key to interpreting the information for use in decision making. This short paper assignment will provide you with a background on financial ratios in a particular industry and ask you to apply the financial ratio analysis to a real-world example. Prompt: Select a company of your choice within your industry. The choice of company should be different from the company you will use for your final project and different from the company you chose in the Module One discussion. You may use the Yahoo! Industry Summary to help you in selecting a company. Once you have chosen your company, name some commonly used financial ratios in your industry, calculate specific ratios, and discuss the profitability of the company. Also, summarize your findings as well as discuss in general the limitations of financial ratios and those that apply directly to your industry. Specifically, the following critical elements must be addressed: I. Financial Ratios a) Name and describe some commonly used financial ratios in your industry. b) Calculate the return on assets (ROA) and return on equity (ROE) for a company of your choosing within your industry. (Note: the company must be different from the one you choose for your final project and different from the company you chose in Module One discussion.) II. Profitability: Assess the profitability of the company based on the financial ratios you calculated and summarize your findings. III. Limitations a) In general terms, discuss the limitations of financial ratios. b) Specifically, discuss which limitations of financial ratios apply to your industry. Rubric Guidelines for Submission: Your paper must be submitted as a 2-page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least 2 sources in addition to the textbook cited in APA format. Critical Elements Financial Ratios: Commonly Used Exemplary (100%) Meets “Proficient” criteria and descriptions are particularly comprehensive Correctly calculates both ROA and ROE for chosen company Proficient (90%) Names and describes commonly used financial ratios for the specific industry Calculates both ROA and ROE for chosen company, but answers may not be correct Needs Improvement (70%) Names and describes commonly used financial ratios but descriptions lack detail Calculates either ROA or ROE but not both Not Evident (0%) Does not list commonly used financial ratios Value 18 Does not calculate either ROA or ROE 18 Profitability Meets “Proficient” criteria and assessment is particularly nuanced or comprehensive Assesses and summarizes the profitability of the chosen company Assesses and summarizes profitability but the assessment or summary lacks detail Does not assess or summarize profitability 18 Limitations of Financial Ratios: In General Meets “Proficient” criteria and description is supported with information from course readings Describes the limitations of financial ratios in general terms Describes the limitations in general terms but description lacks detail Does not describe the limitations in general terms 18 Limitations of Financial Ratios: Specific to Industry Meets “Proficient” criteria and description is supported with information from academic sources and/or real-world experience Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format Describes the limitations of financial ratios specific to the industry Describes the limitations specific to the industry but description lacks detail Does not describe the limitations specific to the industry 18 Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10 Financial Ratios: ROA and ROE Articulation of Response Earned Total 100%
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Explanation & Answer

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Surname 1
Students Name:
Instructors Name:
Course Title:
Date:
Ratio Analysis
Commonly Used Financial Ratios in Automotive Industry
The motor industry is one of the biggest investment sectors not only in the American
economy but also across the globe. The industry comprises a number of companies that span the
globe, such as BMW, Honda, and Ford. The core business of automotive industry is to design,
manufacture and market automotive vehicles and parts. Some of the automotive products include
automobiles, commercial vehicles, and light trucks. Like any other industry, financial analysis is
critical in the automotive industry. Investors rely most on a number of ratios to evaluate the
current state of automotive companies:
Debt-to-Equity Ratio (D/E)
Due to capital-intensive nature of auto industries most of times investors and analysts use
debt-to-equity ratio to measure Company's ability to meet its financing obligations. A higher
debt-to-equity ratio is an indication that the company uses a lot of debt rather than its equity in
financing its operations. An ideal Debt-to-Equity ratio is one (Rist &Pizzica, 2015).
Inventory turnover ratio
The inventory turno...


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