finance

Anfal Behbehani 32686

Dalia Alajmi 33335

Sarah Alsairafi 33013

Zainab Alramadhan 32771

F2

FIN300

AMERICAN UNIVERSITY OF MIDDLE EAST

FALL 2019

Ratios shows the relationship between two amounts. This is a performance measuring tool that derives the relationship between different quantitative aspects in an organization. The ratios are very important as they help in dissecting the financial health of an organization. Analysts uses this information to comment on the future growth and the return prospects of an organization. Groups that uses these ratios includes the financial managers, the creditors and the shareholders of an organization (Liang, et al. 2016). The management uses this info in analyzing organizations performance and works to improving its performance. The lenders on the other hand uses in analyzing the company’s ability in paying their obligations. Investors uses these ratios to project the future rates and the company’s dividends that they may wish to invest in. The five categories of ratios include; liquidity ratio, which is a comparison between the current assets and the current liability. Liquidity assets includes cash, cash equivalents and the marketable securities. This helps in the determination of the ability of an organization in paying their short-term debt. This generally determines the aspect of how much the current assets are as the disposal of an organization in paying for their outstanding dues. This includes the current ratio which represents the financial relations between the total current liabilities and the total current assets. Quick ratio on the other hand shows the relationship existing between the total quick asset and the current liabilities (Altman, et al. 2017). Asset management ratios measure the efficiency of an organization on managing their assets. This can be the inventory, accounts receivable and the fixed assets. This is used in measuring the efficiency in the management of the liabilities that needs to be paid off the firm. Debt management ratios, this measure extend at which organizations uses their debt to equity in financing their assets as well as the organization is willing to pay off their debts. This shows the capability of a business to pay off the debts. (Altman, et al. 2017). Market value ratios gives an idea of what investors think about the firm prospects. It’s employed in determining whether the shares have been overpriced of underpriced. This includes book value per share, dividend yield, and earnings per share, market per share and price / earnings ratio (Liang, et al. 2016). Profitability ratios are used in comparing the income with one or different activities. This measure the overall success of a business. Return on equity is the most widely used measure of profitability.

Agilent Technologies, Inc. (A)
	formula	2016	2017
Current ratio	current assets/current liabilities	3635000/945000 =3.85	4169000/1263000 =3.30
Quick ratio	current assets - inventory / current liabilities	3635000-533000/945000 =3.28	4169000-575000/1263000 =2.84

The ideal current ratio is more than 1. The current ratio has however reduced in 2017 showing that the company has more liabilities to service than the assets to be making profits.

The company’s liquidity position is more than 1.0 though 2017 recorded a slight drop, this means the company has to do better if they wish to improve the succeeding years.

	formula	2016	2017
Current ratio	current assets/current liabilities	16187000/9781000 =1.65	21223000/16641000 =1.26
Quick ratio	current assets - inventory / current liabilities	16187000-1444000/9781000 =1.51	21223000-1605000/16641000 =1.18

The ideal current ratio is also more than 1. The current ratio has also reduced in 2017 showing that the company has more liabilities to service than the assets to be making profits.

The company’s liquidity position is also more than 1.0 though 2017 recorded a slight drop to 1.18, meaning that the company must do better if they wish to improve the succeeding years (Altman, et al. 2017).

References

Altman, E. I., Iwanicz‐Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial distress prediction in an international context: A review and empirical analysis of Altman's Z‐score model. Journal of International Financial Management & Accounting, 28(2), 131-171.

Liang, D., Lu, C. C., Tsai, C. F., & Shih, G. A. (2016). Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research, 252(2), 561-572.