NAME: DASHINENI CHALLAYA

IC: 1003142004
COURSE: FOUNDATION IN BUSINESS
SUBJECT: INTRODUCTION TO FINANCE
TOPIC: ANALYZING FINANCIAL STATEMENTS
LECTURER: MS LAILATUL

TABLE OF CONTENTS
ANALYZING FINANCIAL STATEMENTS
-

INTRODUCTION

LIQUIDITY RATIOS
CURRENT RATIO
QUICK RATIO( ACID-TEST RATIO)
CASH RATIO

ASSET MANAGEMENT RATIOS

INVENTORY TURNOVER
DAYS SALES IN INVENTORY
AVERAGE COLLECTION PERIOD
ACCOUNTS RECIEVABLE TURNOVER
AVERAGE PAYMENT PERIOD
ACCOUNTS PAYABLE TURNOVER

DEBT MANAGEMENT RATOS

DEBT RATIO
DEBT-TO-EQUITY

PROFITABILTY RATIOS
PROFIT MARGIN
RETURN ON ASSETS
RETURN ON EQUITY

MARKET VALUE RATIOS

PRICE EARNINGS RATIO

INTRODUCTION
What is LIQUIDITY RATIO?

This means that it measures the relationship between a firms liquid and
current liabilites. The three most common ratios to measure the liquidity
ratios are current ratio, quick ratio and cash ratio. These ratios are
important as it will affect the balance sheet. It is because when the
business has more liquids, the business tend to have less financial
distress.

What is ASSET MANAGEMENT RATIO?

This ratio is to measure the efficiency of the firm on using the assets.
Moreover these ratios are commonly used by managers and investors to
evaluate whether the firm has reasonable amount for each type of assets.
There are some common ratios that are used. They are inventory
turnover, days sales in inventory, accounts receivable turnover and
accounts payable turnover.

What is DEBT MANAGEMENT RATIOS?

These ratios is to measure how to finance the debt versus equity to
finance the assets with a reasonable amount. There are some ratios that
used commonly to measure. They are, Debt ratio, debt-to-equity, when
the percentage of debt ratio debt-to-equity is lower, more equity the firm
uses its assets.

What is PROFITABILITY RATIOS?

These ratios measures the overall operations of liquidity, asset
management and debt management.
There are some ratios that
commonly used. They are gross profit margin, profit margin, return on
assets, and return on equity. This ratios are used to see how much the
business make profit.

What is MARKET VALUE RATIOS?

These ratios are used to monitor the business by managers and investors.
The ratios that commonly used are the ROE and market-to-book ratio.
When the ROE is in positive sign they will be high performance in the
business.
WORKING AND SOLUTIONS

Calculating Liquidity Ratios

SOLUTION:
Current ratio: Current Assets

Industry Average= 1.50 times

Current liabilities
=

$1290m
$806m

= 1.60 times

Quick Ratio( acid-test ratio) : Current Assets Inventory

Industry Average: 0.50 times

Current Liabilities
= $ 1290m - $ 650m
$ 806m
= 0.794 times

Cash Ratio: Cash and marketable securities

Industry Average : 0.15 times

Current Liabilities
=

$ 165m
$806m

= 0.205 times

All three liquidity ratios show that Marion & Carter Inc shows that it has more liquidity on its
balance sheet than the industry average. For instance, in current ratio the amount of current
ratio is 1.60 times which means that current assets has $1.60 to pay for every $ 1 of current
liabilities. This is shows that this company is stable with paying the debts for the company.

Calculating Asset Management Ratio

Inventory Turnover = Sales or Cost of Goods Sold

Industry Average= 2.15 times

Inventory
= $ 2053m
$ 650m
= 3.16 times
Days sales in Inventory = Inventory x 365 days
Sales
= $ 650 x $ 365
$ 2053
= 115.56 days
Accounts receivable turnover = Credit Sales

Industry average= 3.84 times

Accounts Receivable
= $ 2053m
$ 475m
= 4.32 times
Accounts payable turnover = Cost of Goods Sold

Industry Average= 3.55 times

Accounts payable
= $ 941m
$ 360m
= 2.61 times

Fixed Asset Turnover=

Sales
Fixed Assets

= $ 2053m
$ 1950m
= 1.052 times

Industry Average= 0.85 times

The inventory turnover in this company is much more faster than the industry average.it can
be seen as it shows that it produce more dollars per dollar of inventory. Not only that it shows
that accounts receivable is much more faster than accounts payable turnover.

Calculating Debt Management Ratios

Debt Ratio = Total Debt

Industry Average = 68.50%

Total Asset
= 3590-1574
3590
= 56.16%

Debt-to-equity = Total Debt

Industry Average = 2.17 times

Total Equity
= 1210 + 806
1574
= 1.28 times

In MARION & CARTER,INC, it can be seen that this firm holds less debt on its balance
sheet than the average firm. Moreover this firm has a stable in financing debt by equity as I
can see that the debt-to-equity ratio it has $1.24 to cover every $ 1 of the debt in the firm.

Calculating Profitability Ratios

Profit Margin = Net income available to common stockholder

Sales

Industry Average=23.25%

= $ 497m
$ 2053m
= 24.21%
Return on assets(ROA) = Net income available to common stockholders
Total Assets

Industry Average= 9.30%

= $ 497m
$ 3590m
= 13.8%
Return on Equity( ROE) = Net income available to common stockholders
Common Stockholders equity

Industry Average= 38.00%

= $ 497m
$ 250+$1299
= 32.09%

In MARION & CARTER,INC firm is more profitable and stable than average firm as it can
evident from the profit margin , ROA and ROE even though the ROE is much more lower
than the industry average. Moreover since the ROE is lower than the industry average, it may
likely to upset the stockholders. Therefore in order to solve this problem, the firm can
increase in paying the stockholders as cash dividends. Yes, it may retain less profits to
reinvest in business.

Calculating Market Value Ratios

Price-earnings(PE) ratio = Market price per share

Industry Average= 6.25times

Earnings per share

= $ 22.970
$ 2.485
= 9.24 times

This ratio shows that since it is more than the industry average, this shows that this company
have money to pay for their company share. Therefore investors are willing to buy shares for
this company.