This website uses cookies to ensure you have the best experience. Learn more

Financial Statement Analysis

1549 words - 7 pages

Assignment_3_Solution

Q4-1. Lenders distinguish between cyclical cash needs and cash needed to fund operating losses because the second type of cash is riskier. It is typical for firms such as retailers to experience cyclical cash flows during the year as they gear up for busy season (October – December for many retailers). This happens in the ordinary course of business. In contrast, operating losses are not routine and can signal ongoing liquidity problems, or at worst, bankruptcy.

Q4-10. Two factors impact credit risk: potential for default, and the magnitude of loss given a default.

Chance of default can be measured via credit analysis, which attempts to capture the probability ...view middle of the document...

However, the company must make significant capital investments and has a large asset base. This yields CAPEX ratio and EBITA to total assets at the lower end of investment-grade debt.

M4-17.

Pfizer, Inc., (PFE) demonstrates marked improvement in almost all aspects of financial health, making the company less risky to creditors in 2006. Its 2006 liquidity ratios (both current and quick) are higher than the prior year.

In terms of solvency, leverage decreased in 2006, as the company seems to be drawing upon equity financing more than debt financing according to its liabilities-to-equity and long-term debt-to-equity ratios.

Finally, although its factor of times interest earned decreased marginally, it is still clearly covering all interest expenses associated with debt obligations (nearly 30 times over), and its cash from operations to total debt and free operating cash flow to total debt increased markedly from 2005 to 2006.

M4-21.

Z-score = 1.2 × (WC/TA) + 1.4 × (RE/TA) + 3.3 × (EBIT/TA) + 0.6 × (MVE/TL) + 0.99 (Sales/TA)

2010:
(1.2 × 0.042) + (1.4 × 0.033) +(3.3 × 0.05) +(0.6 × 0.39) +(0.99 × 0.573) = 1.06

2009:
(1.2 × 0.058) + (1.4 × 0.019) +(3.3 × 0.04) +(0.6 × 0.32) +(0.99 ×0.503) = 0.92

According to the Z-scores for JetBlue, the company is in financial distress and there is high bankruptcy potential. Although the Z-score has improved slightly in 2010, the scores are substantially less than 1.8 for both years.

E4-22.

a. Following are Home Depot’s financial ratios along with each ratio’s implied bond rating using the table results from Exhibit 4.6.

Ratio 2011 Implied rating

EBITA / average assets $5,839 / [($40,877 + $40,125) / 2]
= 14.42% Aaa to Aa

Operating income margin $5,273 / $ 67,997
= 7.75% B

EBITA margin $5,839 / $67,997
= 8.59% B

EBITA interest coverage $5,839 / $530
= 11.02 Aa

Debt / EBITDA ($1,042 + $8,707) / ($5,839 + $1,616)
= 1.31 Aaa to Aa

Debt / book capitalization ($1,042 + $8,707) / ($1,042 + $8,707 + $18,889 + $272)
= 33.72% Aaa to Aa

Retained cash flow to debt ($4,585 - $1,569) / ($1,042 + $8,707)
= 30.94% A

b. From an assessment of the profitability ratios above, Home Depot’s credit rating would be somewhere around a B. However, the coverage and solvency ratios are much stronger and place the company between A and Aa (some near the Aaa range). All aspects continued, the company is in the Aa range. As described in the module, Moody’s rated Home Depot long-term debt at A3, which is between A and Aa, as of late 2011.


E4-24.

a.
($ millions) Times interest earned
2010 $(5,629 + 536) / $536 = 11.50
2009 $(5,913 + 525) / $525 = 12.26
2008 $(5,537 + 509) / $509 = 11.88

The times interest earned ratio rose slightly in 2009 and then fell in 2010. However, the ratio is very high and CVS is able to cover its interest expense by a comfortable margin.

b.
($ millions) Current Ratio
2010 $17,706 / $11,070 = 1.60...

Other Papers Like Financial Statement Analysis

Financial Statement Analysis

1997 words - 8 pages Financial Statement Analysis and Interpretation FIN/571 Corporate Finance November 23, 2015 Financial Statement Analysis The goal of any business regardless of its size should be to obtain and maintain financial profitability and maximize its shareholder’s wealth. The goal of a good manager is to have a solid understanding of his organization’s financial functionality in order to achieve the aforementioned by others. With a

Analysis of Financial Statement

4903 words - 20 pages Analysis of Financial Statement Formal Assignment Report Table of Contents Introduction ...................................................................................................................... 3 1. Brief Review ................................................................................................................. 3 2. Analysis of Financial Performance

Financial Statement Analysis

4114 words - 17 pages [pic] [pic] Assignment On “A Business Analysis of Square Pharmaceutical Ltd.” Course Title: Financial Statement Analysis Course code: ACT-513 Assignment on “Business Analysis of” (Square Pharmaceutical Ltd) Submitted to: Mr. Mohammed Sakhawat Hossain Assistant Professor Faculty of Business and Economics Daffodil International University Submitted by

Financial Statement Analysis

1081 words - 5 pages Assignment 1: Financial Statement Analysis Presented To: Professor Coon Presented By: Carolyn Campbell Class: HSA 525 Date: July 28, 2013 Assignment 1 1. Based on your review of the financial statements, suggest a key insight about the financial health of the company. Speculate on the likely reaction to the financial statements from various stakeholder groups (employee, investors, shareholders). Provide support for your

Financial Statement Analysis - 2670 words

2670 words - 11 pages performance in the marketplace. One of these tools can be the used of financial ratios, which gives to managers the information to set up strategies in order to make decisions in the future. However, it is important to highlight that this ratios provide an overview of the business's financial condition, but an analysis in depth is needed to know the reasons why certain changes have occurred (Maclaney and Atrill, 2002). Nevertheless, there are some

Financial Statement Analysis - 3385 words

3385 words - 14 pages Financial Statement Analysis Paper Starbucks Coffee Company SUMMARY/INTRODUCTION Starbucks identifies itself as “the premier roaster, marketer and retailer of specialty coffee in the world” and fits squarely in the Coffee Shop industry. According to the IBISWorld Industry Report 72221b (Coffee & Snack Shops in the US), the “industry is composed of establishments that prepare or serve specialty snacks and nonalcoholic beverages including

Fnt1 Financial Statement Analysis

1069 words - 5 pages Financial Statement Analysis FNT1: Financial Statement Analysis Task 319.1.2-04, 2.1-01-03 April 1, 2012 MEMORANDUM TO: CEO FROM: RE: Ratio Analysis DATE: April 1, 2012 ______________________________________________________________________________ I have been asked to compare and analyze the rations of Company G for the previous year as well as the industry standards. • Current Ratio: This

Financial Statement Analysis - 7520 words

7520 words - 31 pages Financial Statement Analysis Vertical Common Size – Balance Sheet Mar 13  Mar 12  Mar 11  Mar 10  Mar 09  Mar 08  Mar 13  Mar 12  Mar 11  Mar 10  Mar 09  Mar 08    SOURCES OF FUNDS :  Share Capital    Reserves Total    Equity Share Warrants    Equity Application Money   Total Shareholders Funds   Secured Loans   Unsecured Loans     Total Debt   Other Liabilities    Total Liabilities 971.41 971.41 959.41 887.41 6,203.45 6,203.30 54,238.27

Cwt Limited Financial Statement Analysis

3307 words - 14 pages FINANCIAL STATEMENT ANALYSIS OF CWT LIMITED Page 1 of 36 CONTENT PAGE 1. EXECUTIVE SUMMARY 4 2. INTRODUCTION 4 3. COMPETITORS AND MARKET CONDITIONS 5 4. KEY ELEMENTS OF FINANCIAL PERFORMANCE 6 5. FINANCIAL STATEMENT OVERVIEW 7 6. CRITICAL ANALYSIS OF CWT LIMITED'S FINANCIAL STATEMENTS 8 6.1 Liquidity Ratios 8 6.1.1 Current Ratio 8 6.1.2 Quick Ratio 9 6.1.3 Absolute Liquid Ratio

Fossil Inc. Financial Statement Analysis

2301 words - 10 pages FOSSIL INC. FINANCIAL STATEMENT ANALYSIS PART 1 10/16/2011 Table of Contents6 Introduction 1 Chosen Policies and Quality of Numbers 1 Part 1: Overview of Balance Sheet 1 1.1 Major types of assets and unusual amounts of components 1 1.2 Major types of liabilities and unusual amounts of components 2 1.3 Major types of Equities and unusual amounts of components 2 Part 2: Overview of the Income Statement 3 2.1 Major

Financial Statement Analysis of Gsk

4799 words - 20 pages ------------------------------------------------- Financial STatement analysis GlaxoSmithKline Limited Company June 15, 2015 GROUP: 6 | SL.No | Name | ID | Remarks | 1. | Md. Arif Hossain | 20-066 | | 2. | Abdullah-Al-Noman | 20-128 | | 3. | Md. Abdul Hamid | 20-110 | | 4. | Rasheduzzaman | 20-070 | | 5. | Md. AmanUllah | 20-116 | | 6. | SumiAkterRitu | 20-030 | | | | | Prepared for: | Tanvir Hamim

Related Essays

Financial Statement Analysis 631 Words

631 words - 3 pages Financial Statement Analysis Financial statements are the primary information companies publish about themselves. Financial statement analysis is the method used by any interested party to answer questions about a company by extracting the information from company financial statements. Financial statement analysis mainly focuses on investors, since businesses are in business to make profits, financial statements are prepared with

Financial Statement Analysis 3543 Words

3543 words - 15 pages FINANCIAL MANAGEMENT Financial Statement Analysis The process of determining financial strengths and weaknesses of a firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. Financial Statement Analysis Metcalf and Titard:It is a process of evaluating the relationship between component parts of a financial statement to obtain a better under standing of a

Financial Statement Analysis 2469 Words

2469 words - 10 pages CHAPTER 5—BASICS OF ANALYSIS MULTIPLE CHOICE 1. Statements in which all items are expressed only in relative terms (percentages of a base) are termed: a.|Vertical Statements| b.|Horizontal Statements| c.|Funds Statements| d.|Common-Size Statements| e.|none of the answers are correct| ANS: D 2. In financial statement analysis, ratios are: a.|the only type of analysis where industry data are available| b.|absolute numbers

Financial Statement Analysis 4656 Words

4656 words - 19 pages FINANCIAL COMPARISON BETWEEN THE BOEING COMPANY AND LOCKHEED MARTIN Keith L. Hohl EMGT 452 Semester Project 14 December 1999 Table of Contents 1. Introduction/Study Objective 2. Boeing Financial Statement and Analysis 2.1. Background and Product Lines 2.2. Consolidated Balance and Income Statements 2.3. Divisional Financial Statements 2.4. Ratio and Trend Analysis 3. Lockheed Martin Financial