Financial Statement Analysis

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Please answer the following questions using your own thoughts and ideas.

Part 1

Question Text

How does a company assess its sustainable growth rate (SGR)?

· How does a firm use the SGR in decision making?

· What are the consequences for a firm that grows a higher rate than its SGR?

· What are the consequences for a firm that grows at a lower rate than its SGR?

Consider the following ideas to include in your answer:

· Which variables are used in calculating the SGR?

· How does a firm use the SGR in choosing a financing option?

· How does a firm finance a growth that is higher than its SGR?

· What is the opportunity cost for a firm that grows at a lower rate than its SGR?

Part 2

Several types of stakeholders and investors attempt to arrive at an estimation of a company’s financial performance and its future outlook for investment purposes, conducting business, self-evaluation of strengths and weaknesses, and extension of credit. They pose such questions as follows:

· What is the company’s performance record and what are the future expectations?

· How much risk is inherent in the firm’s existing capital structure?

· How successfully does the firm compete in its industry?

· What will be the source of debt repayments?

· How well does the company manage working capital?

· How well has the firm performed and why?

· What are the strengths and weaknesses of the company’s financial position?

If you were performing this analysis, how would you go about doing it?

Consider the following ideas in your answer:

1. What type of financial data would you use and where would you get it?

2. What ratio analysis would you do?

3. How would you determine the leadership’s performance in the company?

4. What would you consider as an indication of a successful company versus a poor performing company?