This document discusses financial ratio analysis and capital budgeting techniques. It provides ratios to evaluate a company's profitability, liquidity, efficiency, and capital structure. Ratios like gross profit margin, current ratio, and gearing ratio are examined. It also compares two potential projects (Project X and Y) using payback period, net present value (NPV), and internal rate of return (IRR). Project X is recommended as it has a shorter payback period of 1.85 years, higher NPV of €29.92 million, and IRR of 24.49%, compared to Project Y. Additional factors for investment decisions and difficulties in capital budgeting are also outlined.
This Project deals with the comparative study of 2 companies listed in S&P 500 for their performance evaluation & ratio analysis for the 3 financial years.
This Project deals with the comparative study of 2 companies listed in S&P 500 for their performance evaluation & ratio analysis for the 3 financial years.
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I am a mentor, Friend for all Management Aspirants, Any query related to anything in Management, Do write me @ supabuoy@gmail.com.
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Financial trend analysis is based on income statement and balance sheet of the company.
For the analysis i have taken the data of 2013-2015. and calculate the ratios and also describing them and comparing them by putting into graphs.
Financial analysis assignment: Analyzing the Business Strategies of Various C...Total Assignment Help
The major part of operations as discussed in this financial analysis assignment of
Woolworth's Limited is in Australia and New Zealand. The company belongs to consumer goods
industry (Woolworth's, 2019)
Hi Friends
This is supa bouy
I am a mentor, Friend for all Management Aspirants, Any query related to anything in Management, Do write me @ supabuoy@gmail.com.
I will try to assist the best way I can.
Cheers to lyf…!!!
Supa Bouy
Financial trend analysis is based on income statement and balance sheet of the company.
For the analysis i have taken the data of 2013-2015. and calculate the ratios and also describing them and comparing them by putting into graphs.
Financial analysis assignment: Analyzing the Business Strategies of Various C...Total Assignment Help
The major part of operations as discussed in this financial analysis assignment of
Woolworth's Limited is in Australia and New Zealand. The company belongs to consumer goods
industry (Woolworth's, 2019)
This presentation is about the 4th quarter earnings 2011 of Samsung Electronics. It contains the balance sheet, financial statement and compares it with the previous year/quarter. Also there are some key ratios calculated to give a better image about Samsung Electronics. I hope that this presentation can give you a better idea on where Samsung Electronics financially stand at the moment.
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Running head FINANCIAL ANALYSIS OF LOWE’S COMPANY .docxwlynn1
Running head: FINANCIAL ANALYSIS OF LOWE’S COMPANY 1
FINANCIAL ANALYSIS OF LOWE’S COMPANY 11
Financial Analysis of Lowe’s Company
Introduction
Lowes Company is a national store that was founded in the year 1948. The company was first opened in North Carolina and it was among the first retailer companies in America back then. The company mainly dealt with home equipment and appliances. Moreover, the company is said to have been generating huge revenues back then when it began. The company continued to thrive in its operations as it opened up approximately 2390 stores across the world. The company also promoted social responsibility in the society as it has so far employed around 310, 000 individuals in its stores worldwide. However, in the past years, the performance of the company began deteriorating and a financial analysis has to be carried out in order to know the problem.
Body
Common size income statement
year
2018
2017
2016
2015
Net sales
100
100
100
100
Cost of sales
65.89
65.45
65.18
65.21
Gross margin
34.11
34.55
34.82
34.79
Selling, general exp
22.41
23.27
23.88
23.61
Depreciation and amortization
2.11
2.29
2.53
2.66
Operating income
9.60
8.99
8.41
8.52
Interest expense
0.93
1.00
0.93
0.92
Amortization
0.02
0.02
0.01
0.01
Interest income
0.02
0.02
0.01
0.01
Interest net
0.92
0.99
0.93
0.92
Loss on extinguishment of debt
0.68
-
-
-
Pre-tax earnings
8.00
8.00
7.48
7.61
Income tax provisions
2.98
3.24
3.17
2.81
Net earnings
5.02
4.76
4.31
4.80
A common size financial statement is a document that is used in doing comparison of financial information. The values of the common size income statement are normally converted as a percentage of the returns. From the common size income statement it is clear that the cost of sales increases over the years. The cost of sales in 2015 was 65.21 and in 2018 the cost of sales was 65.89. However, the gross margin is decreasing over the years. A gross margin is the amount that is the revenue that is collected in each commodity that is sold. The decrease in the gross margin is an indicator that the company is not performing well financially. Companies should have a high gross margin so that they can be able to meet other financial obligations.
Moreover, from the common size financial statement of analysis, it can be seen that the pretax earnings decreased slightly in 2015 and 2016 and then remained stable for the next two years[footnoteRef:1]. In addition, the interest net, interest income and the amortization are a clear indication that the company is carrying out proper investments using the shareholders property and wealth. The extra investments will enable the company to have a high debt to equity ratio and eventually the return on equity will increase greatly. Firms that have a high return on equity also have a greater ability to meet the day to day expenses. Therefore, firms are.
General Electric 14General ElectricFinanc.docxbudbarber38650
General Electric 14
General Electric
Financial Analysis
Nicole Henry
EXECUTIVE SUMMARY
General Electric has been in business for over a century now and the inception of the dynamo has been the key to one of the largest global names. The company has been able to financially provide for the electrical and then today in the financial sector as well. This is reflected in the financial position of the company which has performed in the double digits during tough times. When analyzing the financial position of the company, it is evident that the performance that the company had been gaining for over a period has now started seeing a settlement impact. This means that the growth perspective that the company was seeing over the last couple of years have now subsided. The impact of growth is visible in the current year where the company’s financial position took a dip. Although the dip is the settlement of the exceeding performance; and has a subsided impact from the financial crunch in the previous decade around the globe.
ANALYSIS OVERVIEW
In order to analyze a company which has its operations in different business factions there are certain questions that need to be raised. The first question is that with such a gigantic business across the globe, is it feasible to break the financial analysis on a business wise or is the company feasible to be analyzed in a single entity perspective. The perspective reveals that the company analyzes its performance as a single entity and hence all the stakeholders are considered under a single arena. Thence, the review has to be taken in the single entity perspective. Along with this, there is a portion of performance review which is to set the trends for the future. The perspective cannot be taken as the downward trend, but this has to be taken as a moving average of the recent years. The financial analysis will reveal what factions of the company underperformed and led to a decrease in the financial position. The financial ratios used in the study reveal the position and performance of the company in the perspective of how each pillar has performed. This ratio analysis will also be an intricate combination of the businesses of the company to augment each pillar.
ASSUMPTIONS
The basis for carrying out the financial analysis for the company involves the changing trends of the company and the industry itself. Although the company’s financial positions appear to present strong performance, the underlying belief is that the company is now in a position where the product and service demand is increasing. Connecting the dots, the company is carrying out the sales with controlled receivables. The assumption set here is that the company’s growth in sales trends for products and services is not driven through increasing credit exposure. Along with this, there is an increased trend for cost hikes. This is assumed to be driven from the pricing positions in the market and the underlying costs requir.
1Running Head FINANCIALFinancial OverviewSt.docxeugeniadean34240
1
Running Head: FINANCIAL
Financial Overview
Stanley Thompson
MBA 6016
31 January 2016
Identify your company, its industry, and analyze the important segments (percentage of sales or subsidiaries) of your company compared to its industry and its overall business.
Amazon with its headquarter in Seattle, WA is a leading e-commerce company. Amazon provides a range of products and services on retail basis through internet. The company operates in number of countries in Asia and Europe. The company resells its own product as well as providing portals to third party vendors to sell their own goods through its website. The company is also engaged in services like subscription in digital contents. Majority of the company’s revenue is derived from sales of consumer retail products to consumers.
Year Ended 2013 2012
Net Sales:
North America $ 44,517 $ 34,813
International $29,935$26,280
Consolidated $74,452 $61,093
Net Sales Mix:
North America 60% 57%
International 40% 43%
Consolidated 100% 100%
Perform a complete financial analysis of your chosen company's financial statements—horizontal, vertical (Percentage of Sales and Common-Size), and changes in ratios—for the last two years.
The current ratios and quick ratios of Amazon for the periods 2013 and 2012 show moderate liquidity position. Current ratio has decreased from 1.12 in 2012 to 1.07 in 2013. Also liquidity ratio has decreased from 0.80 in 2012 to 0.75 in 2013. Focussing on the asset management ratios, the inventory turnover ratio , days sales outstanding ratio, fixed asset turnover ratio, total asset turnover ratios are all very much satisfactory. Moreover the ratios have remained stable over the concerned two years. Thus it can be said that that Amazon posses the ability to efficiently utilize its fixed assets to generate sales. The high inventory turnover ratio shows the company’s ability to effectively manage its inventory. Moreover the ratios have remained stable over the years 2013 and 2012 suggesting a stable position of the company in respect to asset management.
From the analysis of the debt management ratio it is evident that the company uses high amount of debt in its business. This significantly increases the financial risk of the company. Analyzing the profitability ratios of the company it can be concluded that the profitability of the company is very much poor. In fact the ROE and Profit Margin of the company for year 2012 were negative suggesting that the company has performed very poorly so much as profitability is concerned and has in fact depleted value of its shareholders. The profitability ratios of the year 2013 were all positive but are very much unsatisfactory.
Compare all ratios to industry averages. Evaluate the company's ratios against the.
Equity-Investment Analyst who have been working in the financial markets for over 35 years. A University of Pennsylvania Wharton School of Business Graduate, an Investment and Financial leader on Capital Hill in Washington, DC and 20 years of financial modeling and analysis consulting experience. I am a teacher, a mentor and accomplished businessman eager to share my experience, and helpful advice
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
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Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
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Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
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Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
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RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
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RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...
Fianacial analysis
1. FIANACIAL RATIO ANALYSIS
Hence, ratio analysis allows for intra firm evaluation. we. at the. evaluation involving
yourcompany’s effectiveness in today's year with all your company’s effectiveness with
theprevious year. It also allows for inter firm evaluation. we. at the. evaluation of one's
company’sperformance in today's year with all your competitor’s effectiveness in today's
year. Expert assessment, since this can be named, helps you benchmark your effectiveness
with all your mates. Ratios assistance in ascertaining this monetary health and fitness in the
business plus it is futureprospects. These kind of quotients can be classified below various
mind for you to indicate just what theymeasure. There may be a tendency to function quite a
few quotients. Although most of us assume that beingthorough from the working out in
addition to meaning of an number of quotients (Say 20-25) could be best, due to the fact too
much of analysis might lead to paralysis.
Computing RatiosWhen a ratio includes a P&L number both equally from the numerator in
addition to from the denominator or provides abalance page number both equally from the
numerator in addition to from the denominator it really is named a straightratio. Exactly
where it offers this P&L number from the numerator and also the harmony page number with
thedenominator or the total amount page number from the numerator and also the P&L
number with thedenominator it really is named a corner or hybrid ratio. A: Liquidity or
Temporary Solvency RatiosLiquidity identifies this velocity in addition to simplicity along
with which a tool can be converted to money. Liquidity provides a couple of size: ease of
transformation compared to decrease in importance. Don't forget anyasset can be quickly
converted to money in case you slash the retail price. A property property or home valued
atRs twenty five lakhs can be converted to money in 1 day in case you slash the retail price
for you to Rs 5 lakhs! So a water tool is basically a single that is converted to money with no
2. major decrease in importance. An illiquid tool is actually one that is not en-cashed with no
major slash with value. Present belongings are usually most water. Fixed belongings are
usually minimum water. Real preset belongings likeland in addition to creating in addition to
gear aren’t commonly converted to money in any respect with normalbusiness task. There're
utilised available to create money. Intangibles such astrademark have zero actual lifestyle in
addition to aren’t generally converted to money. Liquidity is actually invaluable. The harder
water a small business is actually, this a smaller amount would be the chance of itfacing
monetary problems. Although too much of liquidity far too is just not good. That’s since
liquidity includes a sale price. Liquid belongings are usually a smaller amount worthwhile to
keep. For that reason there's a trade off concerning theadvantages involving liquidity in
addition to foregone prospective earnings. Liquidity or Temporary solvency quotients supply
information regarding a firm’s liquidity. Theprimary concern would be the firm’s power to
shell out it is expenses in the brief run with no unduestress. Consequently these quotients
target recent belongings in addition to recent liabilities.
“Task A”
Financial performance of Monitor PLC for the last four years can’t be considered up to the
mark by the analysis the ratios of the firm. There are certain areas which are better but on the
cost of others. For the purpose of the analysis of the Monitor PLC, following assumptions are
made;
Product mix of the company remain unchanged
Company does not acquire or merged with any other company
Stock market conditions remain stable in the period of analysis
No significant change occur in the industry structure
Profitability:
3. Gross profit margin of the company is on declining side while net profit margin is
relatively at stable position with slight increase. By comparing these two ratios, it can be said
that company cost of sales is on higher side and on the other side company slightly reduce its
operating cost. The reason behind the increase in cost of sales can be traced from the analysis
of material, labor, and overhead cost. From the analysis of these, it reveals that there is
significant increase in the materials and labor cost which cause the gross profit margin to
decline from 30% to 24% in the previous four years. Material cost increase from 40% of cost
of sale in 2010 to 48% in 2013. Even in 2013, while comparing these ratios with those of the
competitor and business sector norms, company’s performance is lagging behind. Its gross
profit margin is 24% as compare to 29% and 34% and net profit margin is 3.4% as compare
to 7% and 9% of competitor and sector norm respectively.
On the other side while analyzing the trend of return on employed capital and return
on equity, the opposite direction movement has been observed. Return on employed
capital is on declining side as compare with increasing trend of return on equity. The
reason that can be attributed to such trend is the leverage effect that can be seen in the
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013
Gross profit
Net Profit
4. gearing ratio which is 35% in 2010 and jumped to 76% in 2013. As compare to
competitor and sector norm, company clearly has shown less performance in 2013 in
the both ratios.
Liquidity:
Liquidity of the firm showed the increasing trend by viewing the current ratio and
quick ratio showing the contradictory behavior. Current ratio increase from 3.4 in 2010 to 3.7
in 2013 and quick ratio decline from 2.30 in 2010 to 1.40 in 2013. This contradictory
behavior indicates that firm invest significant amount in stock which is increasing with the
passage of time. Creation of such bulk of inventory also affect the efficiency of the firm as its
stock turnover in days jumped up to 89 days in 2013from 65 days in 2010.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2011 2012 2013
Return on Capital
Employed
Return on Equity
5. Efficiency:
For the efficient management of working capital, firm should try to;
Minimize the stock turnover in days by avoiding the costly stock outs
Minimize the debtors collection period without exerting extra pressure which results
into sales loss
Maximize the creditors payment period without hurting the credit worth
As with the case of Monitor PLC, all of above mentioned three ratios has shown the opposite
trend. Result of which is high and increasing cash operating cycle (95 days in 2010 and 150
days in 2013) that may be the cause of low profitability of the firm. Firm has stuck up huge
amount in the working capital/ cash operating cycle which result into not only the high
opportunity cost but also high inventory handling cost and bad debts. Its cash operating cycle
in 2013 is 150 days as compare to competitor’s 55 days which is about 3 times greater.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2010 2011 2012 2013
Current Ratio
Quick Ratio
6. There is a decline in firm’s working capital turnover and fixed asset productivity. Its working
capital turnover decrease from 2.80 in 2010 to 2.30 in 2013 which is also less than its
competitor and business sector norm those are 3.5 and 4.0 respectively. Fixed asset also
decline from 1.95 to 1.39 in the same period and in 2013 the same ratio of the competitor and
sector norm are 2.0 and 2.50 respectively. All of these facts indicate the inefficiency of the
firm not only in the form of poor working capital management but also not utilizing the fixed
assets properly to generate the sales of the firm.
0
20
40
60
80
100
120
140
160
2010 2011 2012 2013
Stock turnover in days
Debtors collection
period
Creditors payment
period
Cash operating cycle
0
0.5
1
1.5
2
2.5
3
2010 2011 2012 2013
Working capital
turnover
Fixed asset
productivity
7. Investment:
Monitor PLC’s dividend yield ratio is declining and comes to 2% in 2013 as compare
5.3% in 2009. It is also less than that of the competitor’s 3.15% but higher than sector norm
of 1.60%. Dividend yield ratio is just an indication of the return in the form of dividend not
the representative of the total return of the stock. Even many investors prefer the stock paying
low dividends and offer return in the form of stock appreciation which is a positive aspect of
the analysis of Monitor PLC. The price of its stock increases to €16.20 in 2013 from €11.70
in 2010.
Higher and increasing P/E ratio usually indicates the growth potential of a firm. Apparently
Monitor PLC’s stock seems to be more a growth stock then a value stock while comparing
with its competitor in 2013 as its P/E is 18 as compare to 11 of its competitor. But by keeping
in view the overall analysis of the company and previous years P/E ratios which are around
14, Monitor PLC seems to be overvalued in 2013.
Gearing:
Gearing ratio of the firm increases drastically, from 35% in 2010 to 76% in 2013 that
indicates the strong leverage creation. This heavy increase in long term debt is employed at
fixed assets and working capital investment. Fixed assets investment is justifiable in the
context of growth prospect but employing amount from long term debt to working capital
finance only increases the cost for the business.
Overall financial position of Monitor PLC is neither very good nor very bad. Its return to
shareholders is increasing and also showed satisfactory performance in the market. Liquidity
position of the company is also good as compare to the competitor and business sector norm.
But on the other side, poor working capital management, low profitability, and increasing
8. cost of sale are major concerns for the firm’s management. There are certain areas like
operating cost structure, cash flows, and assets composition which need to be explored
further in order to get more insight to the company position.
Suggestions/Recommendations:
On the basis of the available information for the Monitor PLC, following are the some
suggestions or recommendations;
Firm should create the close liaison with its suppliers to control the material cost and
negotiate on the payment terms.
Firm should create a better credit policy for the customers and make the collection
system efficient in order to reduce the debtors collection period.
Reconsider the inventory management system and evaluate the feasibility of the JIT
inventory system with the help of long term relationship building with the suppliers.
Firm should maintain the optimal capital structure by also issuing some new stock or
generating more finances internally, as its gearing ratio is increasing which may lead
to the insolvency in the future.
Analyze the composition of fix assets so it can be used optimally in order to generate
the revenue as fix asset productivity declining with the passage of time.
9. “Task B”
1)
Project X Project Y
Payback Period 1.85 years 2.70 years
NPV €29.92 €21.08
IRR 24.49% 18.78%
2)
On the basis of above three capital project appraisal techniques project X is
recommended for Monitor PLC.
Payback period of Project X is 1.85 years which is less than that of the project
Y’s 2.70 years that’s why project X is acceptable. Because if payback period
is less then firm will be able to cover is initial expenditure in the shorter time
span and cash flows received after payback period will be added to the wealth
of shareholders.
NPV of Project X is €29.92 which is higher than €21.08 of project Y so on the
basis of NPV again project X is more suitable. NPV is net amount that is
added to the shareholders wealth after adjusting the cost of capital. Wealth
maximization is the ultimate objective of the financial management. So in case
of accepting project X wealth of shareholders increases more as compare to
the project Y.
Similarly high IRR of 24.49% for the Project X as compare to 18.78% of
project Y also leads towards the same decision of accepting the Project X.
Every business wants to invest its fund in the opportunity which provides it
10. the higher returns. From the two alternatives project X provides the higher
return that is the main cause of its acceptance.
3)
Followings are some of the other factors that should be considered before an
investment decision is made;
Risks associated with the realization of projected cash flows associated with
the projects under consideration. For this purpose sensitivity analysis can be
performed.
Rate at which the technological changes took place which obsolete the
existing technology. It is critical for the company like Monitor PLC because
rate of technology change is fast in this industry. This factor becomes more
crucial for software/ IT industry and in this case payback period become the
key capital project appraisal technique.
Consider some of the important macro-economic variables those may impact
on the performance of the projects under consideration.
Competitors’ action or reaction on the important projects implementation and
its impact on the performance of the project.
4)
Optimal investment policy is to undertake the 1.36 projects X. 1.36 is find by;
Number of projects = Available funds/cost of one project
Number of projects = 150,000,000/110,000,000
Number of projects =1.36
The resulting total NPV from this policy will be;
Total NPV = NPV of single project * Number of projects
11. Total NPV = 29.92 * 1.36
Total NPV = €40.69 millions
5)
If projects are indivisible then company can undertake only one project which is
Project X and search for another suitable capital expenditure project for the remaining
funds or devise some other policy to optimally utilize the surplus fund.
6)
Followings are some of the difficulties and ways to overcome such difficulties
relating to appraising capital investment projects;
One of the theoretical difficulties comes when there is conflict ranking among
different capital project appraising techniques. Such difficulty can be
overcome by analyzing the nature of the project. For example if project is
relating to dynamic industry like software then payback period is preferred
otherwise some other technique can be followed.
Another difficulty is estimation of the life of the project which can be tackled
by careful analysis using the skills of the experienced, qualified, and project
related personnel.
Estimation of the projected cash flows is a very critical difficulty that can be
faced by the appraisers. Because sometimes capital assets are used in such a
mixed way that it is very difficult to find the particular cash flows associated
with that project.
12. Payback Period:
Project X (€, millions) Project Y (€, millions)
Initial Expenditure 110 100
Cash Flows Cumulative CF Cash Flows Cumulative CF
Year 1 55 55 30 30
Year 2 65 120 35 65
Year 3 30 150 50 115
Year 4 10 160 30 145
Resale value Year 4 10 170 10 155
Payback (X) = 1 + 55/65 Payback (X) = 2 + 35/50
Payback (X) = 1 + 0.85 Payback (X) = 2 + 0.70
Payback (X) = 1.85 years Payback (X) = 2.70 years
NPV (Net Present Value):
Project X (€, millions) Project Y (€, millions)
Initial Expenditure 110 100
Cash Flows Present Value Cash Flows Present Value
Year 1 55 50 30 27.27
Year 2 65 53.72 35 28.93
Year 3 30 22.54 50 37.56
Year 4 10 6.83 30 20.49
Resale value Year 4 10 6.83 10 6.83
Sum of present value 139.92 121.08
Net Present Value 139.92 – 110 = 29.92 121.08 – 100 = 21.08
Present value is calculated by using formula;
Present value = future value / (1+r)n
IRR (Internal Rate of Return):
IRR is calculated by using the spreadsheet and financial function “=IRR(Range of
Cash flows)”
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