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Ratio analysis

Dear Vineet Swarup,

Please see the attached file and help me to answer these 2 questions.

Thank you

1. Without crossing the line in terms of confidentiality, share with us a financial item (Balance Sheet related) that changed significantly from 2006 to 2007 or 2005 to 2006, review annual reports for a publicly held company and do the same. More importantly, explain what caused the significant change.

2. Using the sources cited in Exhibit 16-7, Pg. 734 of the Textbook, compare industry averages against a company of your choice, for 5 ratios (you pick which ones). Comment on whether you think the industry averages are "better" than yours or not.
Source Content
Amanac of Business and Industrial An exhaustive source that contains common
Financial Ratios. Aspen Publishers; size income statements and financial ratios
Published annually by industry and by the size of companies
within each industry.

AMA Annual Statement Studies, Risk A widely used publication that contains
Management Association; common-size statements and financial
Published annually ratios on individual companies; the
Companies are arranged by industry.

EDGAR, Securities and Exchange An exhaustive Internet database that
Commission; website that is contains reports filed by companies
Continually updated: www.sec.gov with the SEC; these reports can be
Downloaded.

Free Edgar, EDGAR Online, Inc.; A site that allows you to search SEC
Website that is continually updated; filings; financial information can be
www.freeedgar.com downloaded directly into Excel worksheet.

Hoover's Online, Hoovers, Inc.; A site that provides capsule profiles for
Website that is continually updated; 10,000 U.S. companies with links to
www.hoovers.com company websites, annual reports, stock
charts, news articles, and industry info.

Industry Norms & Key Business Fourteen commonly used financial ratios
Ratios, Dun & Bradstreet; are computed for over 800 major industry
Published annually. Groupings.

Mergent Industrial Manual and An exhaustive source that contains financial
Mergent Bank and Finance ratios on all companies listed on the New
Manual; published annually York Stock Exchange, the American Stock
Exchange, and regional American
Exchanges.

Standard & Poor's Industry Survey, Various statistics, including some financial
Standard & Poor's; published annually. Ratios, are given by industry and for
Leading companies within each industry
Grouping.

Attachments

Solution Preview

Please see the attached file.

1. Without crossing the line in terms of confidentiality, share with us a financial item (Balance Sheet related) that changed significantly from 2006 to 2007 or 2005 to 2006, review annual reports for a publicly held company and do the same. More importantly, explain what caused the significant change.
In my company we acquired a significant client in the year 2007. This necessitated that we increase our resources to address the needs of the client. Pending the IPO of the firm, we took on a bridge loan from the bank. This resulted in a sharp increase in our borrowings, which more than doubled.
For the publicly held company, I have selected GE. While most of the items have changed, the most significant change (taken in relation to the percentage change) is Assets of discontinued operations. The figure was $8,756 million in 2006 and reduced to $66 million in 2007, a change of 99.2%. The reason for the same is provided by the company in Note 2. It states that many business were classified as discontinued operations. In 2007 some of these businesses were sold and that led to the reduction in assets of these discontinued operations. The businesses sold in 2007 were U.S. mortgage business in response to the sub prime crises and Plastics and Advanced Materials business ...

Solution Summary

The solution has two questions - review of a balance sheet item that changed significantly and a comparison of ratios with industry average

$2.19