The paper "Company X Financial Ratios Analysis" is a perfect example of a finance and accounting case study. The purpose of this report is to analyze the performance of company X with the view of determining the viability of investing in its share stock. The report will analyze the financial performance using accounting ratios for profitability, efficiency in generating earnings, stability and dividend earnings for equity shares. A financial ratios analysis utilizes raw data from business financial statements and converts it to forms that enable clearer business management insight and measurement of the financial health of companies (Van Horne and Wachowich, 2001).
This analysis is aimed at preparing a business report setting out the results of the analysis in order to determine whether or not the company would be attractive as a share investment. Relevant Financial Ratios Below is a table showing the results from the calculations made for the respective financial accounting ratios using the financial statements of the company for the three years from 2009 to 2011. The formulae for the financial accounting ratios are displayed in appendix A of this report. Ratio 2009 2010 2011 Performance Ratios: Profit Margin on Sales (before tax) 0.267 0.173 0.199 Total Assets Turnover 1.237 1.001 1.150 Return on Investments 0.557 0.381 0.437 Return on Equity (pre-tax) 0.492 0.394 0.564 Return on Equity (after-tax) 0.258 0.212 0.285 Efficiency Ratios: Inventory Turnover 4.125 7.154 8.280 Accounts Receivable Turnover 12.0 10.0 9.286 Average Collection Period . 000232 . 000278 . 000299 Liquidity Ratios: Current Ratio 1.156 0.39 0.69 Quick Asset Ratio 0.656 0.209 0.325 Stability Ratios: Debt to Total Assets 0.492 1.088 0.937 Times Interest Earned 13.0 5.396 Per-share Ratios: Earnings per Share (in cents) 84 70 131 Dividend per Share (in cents) 30 60 100 Dividend Cover 2.8 1.17 1.31 Net Asset Backing per Share 2.9 3.9 6.995
Nissim, D, Penman, S 2003, ‘Financial Statement Analysis of Leverage and How it Informs About Profitability and Price-to-Book Ratios’, Review of Accounting Studies, No. 8, Kluwer Academic Publishers, Neitherlands, p. 531 – 560.
Jensen, D 1997, Advanced Accounting, McGraw-Hill College Publishing, USA
Auerbach, A 1995, Cash Flow Analysis, 5th Ed, Financial Performers, Inc., Edward Lowe Foundation.
Van Horne, J., and Wachowicz, J 2001, Fundamentals of Financial Management, 11th Ed., Prentice Hall, UK.
Eric Press, 1999, Analyzing Financial Statements, Lebahar – Friedman, New york.
Muro V 1998, Handbook of Financial Analysis for Corporate Managers, AMACOM, USA
Leopold B, and Wild, J 2000, Analysis of Financial Statement, McGraw – Hill, U.S.A
Samuels J, Wilkes F, Brayshaw R. 1998, ‘Chap. 7 – Financial Analysis and Interpretation’, Financial Management and Decision Making, 1st Ed., International Thomson Business Press, USA
Martin M 1994, Accounting for Effective Decision Making, Irwin Professional Press, USA
Atrill, P and McLaney E 1997, Accounting and Finance for Non-Specialists, Prentice Hall, New Jersey.
Atrill P., McLaney E., 1997, Accounting and Finance for Non-Specialists, Prentice Hall, New Jersey.