Explore BrainMass

Explore BrainMass

    Key Financial Ratios that Measure Stability of a Company

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    How investors assess the stability of a public company? What are the key financial ratios that measure the stability of an organization? Define stability.

    Calculate these ratios per the attached file using Excel spreadsheet. File attached for a analysis of financial ratios for the company.

    Balance Sheet as of December 31, 2005


    Cash and ST Investments $11,210 would this be considered income of any sort?
    Accounts Receivable $9,000
    Inventories ___$750_____
    Total Current Assets $20,960
    Property, Plant & Equipment $62,500
    less Accumulated Depreciation ($11,000)
    Net Property, Plant and Equipment $51,500
    Prepaid Expenses (Non current) $1,500
    Total $73,960

    Accounts Payable -Trade $4,100
    Accrued Liabilities (expenses) $1,750
    Interest Payable $550
    Income Taxes Payable $1,250
    Dividends Payable $500 Is this per share or total dividends?
    Total Current Liabilities $8,150
    Long term Debt - A $10,000
    Long term Debt - B $7,500
    Total Liabilities $25,650
    Common Stock at Par $42,500
    Retained Earnings $6,310 Would this be considered part of income?
    Treasury Stock - at cost ($500) This equals dividends?
    Total Shareholders equity $48,310
    Total $73,960

    Key Financial Data for Company

    Income Statement of Company
    Income for the year ending December 31, 2005


    Net Revenues $50,000
    Total Revenues $50,000
    COGS (not including depreciation) ($25,000)
    Gross Profits $25,000
    SG&A ($10,000)
    Depreciation Expense ($6,500)
    Total Operating Expenses ($16,500)
    Income Before Interest & Taxes $8,500
    Interest Expense ($1,500)
    Income Before Taxes $7,000
    Income Tax Expense ($2,800)
    Net Income $4,200
    Beginning RE $2,700
    Dividends ($590)
    Ending RE $6,310

    © BrainMass Inc. brainmass.com March 4, 2021, 6:17 pm ad1c9bdddf


    Solution Preview

    See attached file
    How investors assess the stability of a public company?  What are the key financial ratios that measure the stability of an organization?  Define stability.

    Public companies are legally obligated to disclose financial information to shareholders and legislative bodies in the form of an annual report

    These annual reports provide:
    information on the previous year's activities and performance
    plans for the coming years
    financial data, graphs, pictures and charts
    information for the non-business audience in an easy-to-read format.

    Investors use these annual reports to assess profitability, survivability, growth, stability, dividends (if any), and the problems, risks and other factors affecting investment.

    Investors use the annual reports to calculate ratios like Earnings per share , Price/Earning ratio, Dividend yield , Dividend cover which help in making investment decisions.

    Stability is the ability to remain viable in both long-term commitments and working capital sufficiency contexts

    FINANCIAL STABILITY RATIOS ­ measure the ability to remain viable in both long-term commitments and working capital sufficiency contexts;

    Financial Stability ratios focus on assessing the amount of risk for an entity.They fall into two categories:
    ? Measures of short term liquidity:
    Current Ratio
    This liquidity measure indicates ability to meet immediate financial obligations from current assets.

    ? Measures of financial structure and long term solvency:
    Debt to Equity Ratio
    It ...

    Solution Summary

    Answers to 2 questions are provided:
    1) Discussion of key fnancial ratios that measure stability of a Company
    2) Calculation of these ratios for a company whose financial statements (balance Sheet and Income Statement) are given.