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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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...