Financial Analysis

This assessment includes two parts. Use the templates provided as you complete each part. Both of the templates are linked in the Resources under the Required Resources heading. Note that for Part 2 you will use the template for data but will create your own document to submit.

Part 1: Ratio Analysis

Making sense of accounting data on financial statements can be difficult. Thankfully, combining numbers from income statements, balance sheets, and other data provides a starting point to analyze a company’s financial results. You now have the opportunity to demonstrate your prowess by identifying and computing financial ratios.

Using the Assessment 5, Part 1 Template, analyze and compute the necessary financial ratios. The Financial Statements worksheet in the template contains the income statement, balance sheets, and additional information needed. The Ratio Analysis worksheet contains space for your calculations and answers.

Part 2: Interpreting Financial Statement Analysis

What does the calculation of a financial statement ratio represent? How does one year compare to another? Is there a trend to the ratio data? Is the trend positive or negative? What can be done to change the trend? These are some of the questions that can be answered when the ratio data is interpreted. For this part of the assessment, demonstrate your ability to interpret the results of a multi-year financial ratio analysis.

On the Assessment 5, Part 2 Template you will find selected ratios for a company over a two-year period. Compare the ratios, and in a separate document (Word or Excel), submit your answers to the following questions:

What does the calculation of each ratio represent?

How does year one compare with year two, and what trend can be seen when you compare the two years?

Is the trend from year one to year two positive or negative?

What are the possible reasons for the trend?

What recommendations do you have for turning a negative trend to a positive trend?

Submit the completed template for Part 1 and the document you created with answers to the questions for Part 2 for this assessment.

BUS-FP3061 – Fundamentals of Accounting

Assessment 5, Part 1 Template

2013 Calculations 2013 Answers

Current ratio

Quick ratio

Receivables turnover

Inventory turnover

Profit margin

Asset turnover

Return on assets

Return on equity

Earnings per share

Price-earnings

Cash Dividend payout

Debt ratio

Debt-to-Equity

Times interest earned

BUS-FP3061 – Fundamentals of Accounting

Ratio Year 1 Year 2

Current ratio 3.12:1 2.96:1

Quick ratio 1.34:1 1.02:1

Receivables turnover 9.7 times 10.2 times

Inventory turnover 2.4 times 2.3 times

Profit margin 11.4% 12.6%

Asset turnover 1.21 times 1.22 times

Return on assets 13.7% 15.4%

Return on equity 28.5% 29.3%

Price-earnings ratio 10.4 times 12.4 times

Debt ratio 50.2% 45.3%

Times interest earned 9.6 times 13.0 times

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