Gargantua: Do you share Mr. Throneberry's optimism?
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Please read the following pertaining to the case:
The following is an excerpt from a press conference with Marv Throneberry, CEO of Gargantua:
"Gargantua had a breakthrough year in 2008. Earnings increased for the 5th straight year, earnings per share were almost 50% higher than in any previous year, Return on Equity was at a record level, and cash flow from operations was more than 65% higher than in 2007.
2008 was a banner year and I foresee even more financial success in the next few years."
Do you share Mr. Throneberry's optimism? Why or why not?
I have attached an Excel file that contains the Balance Sheet, Income Statement, Statement of Cash Flows, and supporting Schedules for Gargantua for the period 2003-2008.
The answer should be in the form of text followed by some exhibits. The text should briefly summarize your conclusions and provide details about the analysis supporting your conclusions.
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Solution Summary
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Here we have to do the financial analysis to know about the future prospects of the company. In financial analysis, we need qualitative information and try to read between the numbers. We have to ask all the right questions. Over the years, there are some ratios, which have become more popular and handy for rule of thumb analysis of financial statements. Our purpose in this note is not deride them but to advice the reader to use them properly to derive the correct results. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
Operating Ratios
For future growth prospects one will be interested in knowing about the profitability of the organization and the return that the organization is giving to its shareholders. The following ratios will help in knowing the profitability and about the Return on its investments:
Profitability ratios try to measure how profitable the firm is. Note that their success in this endeavor depends on ...
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