# Key Financial Ratios that Measure Stability of a Company

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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

BALANCE SHEET 05

ASSETS

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

LIABILITIES & SHAREHOLDERS EQUITY

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

INCOME STATEMENT 05

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

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##### 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.

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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 ...

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