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I'm lost on the calculations?? I can talk about why or how investors think about investing in a company but I am not sure I understand the numbers with regard to ratios. Investors will judge a company on
1.Profitability 2.Liquidity 3.how much debt and 4. marketability (product will sell). In short investors want to know they are not investing their money in a sinking ship. Could you please show me how to do the calculations?
You have been asked to create an informative slide presentation to managers, most of whom do not have a technical knowledge of accounting.
First, you will discuss key elements with top executives. Go to the small group discussion board and discuss the following:
How will investors assess the stability of Strident Marks? What are the key financial ratios that measure the stability of an organization? Define stability.
Next, individually, calculate these ratios, file attached
You are a financial analyst in the finance division of Strident Marks, a manufacturing company that has recently gone through the initial public offering (IPO) process and has become a public company. Strident Marks has annual sales revenue of approximately $50 million and makes seven unique and distinct products (which serve seven different markets). Each product is represented by its own division within the company and has its own group of sales, marketing, and manufacturing personnel. Some departments, including human resources and the finance division, support the entire organization. Operations consist of a single headquarters and production (manufacturing) center.
In your role as financial analyst you are responsible for compiling and reporting on budget / forecast data, for assisting your investor relations department, and for assessing and valuing new business opportunities (which will ultimately be presented to upper management). You report directly to the Chief Financial Officer (CFO) and have the use of the accounting department's staff accountants to assist you with your budget / forecast responsibilities.
You have been informed by the CFO that Strident Marks will be aggressively pursuing new business opportunities, which may include expansion through acquisition and the development and implementation of new products. As a publicly traded company, Strident Marks is scrutinized by bankers and investors as never before. In fulfilling your responsibilities you must keep this in mind, and you must instill a new sense of financial discipline in the organization.
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For a comprehensive list of ratios and equations, go to http://www.accountz.com/ratios.html Please keep in mind that different people may use different equations for ratios-check my equations against those you use in your class. Also, there may be ratios here that you've never heard of, or I may leave out a few that you think are important. As noted below, I use averages over the period for several ratios, but you have only provided data for one year. You may need to adjust these ratios if you do have more data (and your prof. uses averages, too).
<br>Ratios are most informative when you compare them, to other periods in the same company or to other companies in the same industry. Otherwise, they're just numbers with no context.
<br>The easiest way I've found to do these calculations is to input all of the variables (from the income statement and balance sheet) into a spreadsheet, and set up the equations that way. It saves typing in the same number several times for different ratios.
<br>1. Profitability ratios - to assess the ability of a firm to earn profit.
<br>Return on Assets (ROA): net income/average total assets Average total assets refers to the average ...
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