Financial Management

Locate a publicly traded U.S. company of your choice. Then, calculate the following ratios for the company for 2012 and 2013:

• Liquidity Ratios

  • Current ratio (current assets/current liabilities)

  • Quick ratio [(current assets – inventory)/current liabilities]

• Asset Turnover Ratios

  • Collection period [accounts receivable / average daily sales]

  • Inventory turnover [cost of goods sold / ending inventory]

  • Fixed asset turnover [sales / net fixed asset]

• Financial Leverage Ratios

  • Debt-to –asset ratio [total liabilities / total assets]

  • Debt-to-equity ratio [total liabilities / total stockholders’ equity]

  • Times-interest-earned (TIE) ratio [EBIT / interest]

• Profitability Ratios

  • Net profit margin [net income / sales]

  • Return on assets(ROA) [net income/total assets]

  • Return on equity (ROE) [net income /total stockholders’ equity]

• Market-Based Ratios

  • Price-to-earnings (P/E) ratio [stock price / earnings per share]

  • Price-to-book (P/B)ratio [market value of common stock / total stockholders’ equity]

You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2012 to 2013, why do you think that it increased? Is it a good or bad sign that the ratio increased? Please explain.

If a ratio decreased from 2012 to 2013, why do you think that it decreased? Is it a good or bad sign that the ratio decreased? Please explain.

If the ratio was unchanged from 2012 to 2013, why do you think that it was unchanged? Is it a good or bad sign that the ratio was unchanged? Please explain.