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Evaluating Financial Ratios

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In anticipation of Mary's request for comparative analysis, it will be useful at this time to do some research for the PowerPoint presentation you are working on for Apex. You know that you can obtain the financials of companies within the same sector or Standard Industry Code as Apex Printing (i.e., commercial printing), and that the North American Industry Classification System (NAICS) Standard Industry 2012 code for Apex Printing is presently 323111. Use Hoover's Pro to search for the sector information.
When you get to work the next day, you see an e-mail from Mary.
Here's the list of financial ratios you asked for. I need you to explain the computation of each and compute these for Apex Printing's results for the financial statements you're using for the PowerPoint presentation. Also, compare Apex's 2-year trend results to that of other firms in the sector. Indicate how each of Apex's ratios differ, and indicate whether the sector ratio or Apex's ratio is indicative of better performance.
Explain the computation for each of the following, and compute each for Apex:
Current ratio
(Long-term) debt to equity ratio
Gross margin percentage
Net profit margin percentage
Return on equity percentage
You pick up the phone hoping to catch her in the office. "Hello," she says. "Did you get my list?"
"Yes," you say. "What's the best way to give you this information?" "Put these comparisons in a table so the information is easy to look at," she says. "Ideally, we would like to use this as part of an executive summary that we can share with the board of directors." "Is there anything else?" you ask.
"You'll need to summarize your results in the final paragraph," she says. "Indicate whether investors would find the financial analysis results of Apex competitive as compared to rivals in the sector."
Tim Russell stops in your office as you're sending the memo.
"How's everything?" he asks. "Very good," you say. After you fill him in on Mary's e-mail, he sits down in the side chair at your desk and you ask, "What's your opinion about the data?"

"I'm confident that most of the data is trending positively," he says. "However, we need to be transparent and indicate any negative trends as well."
To recap: Present your findings of the above data in a table. Add a paragraph summarizing your results, indicating whether investors would find the financial analysis results of Apex competitive as compared to rivals in the sector. Be sure to include both positive and negative trends in your analysis.

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Solution Summary

Ratio analysis allows us to compare a firm's performance to its historic performance as well as to its competitors to determine the strengths and weaknesses of the firm. This is an actual example of such an anlysis and how it can be interpreted to determine strategy and tactics moving forward.

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For purposes of answering this clearly, I have constructed an excel file outlining the ratios requested, the formula used to calculate the answers, and the comparison to the industry based upon the information provided both for Apex and for the industry in general.

As mentioned in the text, most of the ratios are positive versus the comparison to the industry, especially the profitability and return ratios. The firm is behind the industry in terms of the current ratio, but the current ratio is still positive at more than 1, therefore it has a positive trend in terms of its own operations.

Its profit data and return on equity are all positive in relation to the industry averages - even significantly outperforming the industry in the ROE, net profit, and gross margin ...

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