Finance

Christina Marzella

March 6, 2016

Project 1

a. The table below presents financial ratios for five-selected company. The companies lie within the telecommunications, retail and manufacturing sector. These are public listed companies in New York Stock Exchange (NYSE) except for Microsoft Corporation listed at NASDAQ.

Company Name	Formula	Microsoft	Google	Wal-Mart	General Electrical	BT
Current Ratio	Current Assets /Current Liabilities	2.50	4.67	0.97	1.02	0.70
Total Debt Ratio	Total debt /Total assets	0.55	0.18	0.21	0.79	0.94
Asset Turnover	Total Revenue /Total Assets (Annual average)	0.54	0.54	2.38	0.23	0.73
Profit Margin	Net revenue/Sales	0.13	0.21	0.03	0.10	0.14
Price to Earning	Share Price /Dividend	36.72	30.72	13.37	34.16	31.50
Market to Book	Market Value/Book Value *(Shareholder equity)	0.70	4.71	2.48	2.24	57.95
Closing Stock price (Feb 1st)		54.71	710	67.5	30.4	494.2

Sources: (Google 1, Microsoft1, Wal-Mart 36-39, BT Group 84-88, General Electric 51 and Brigham & Houston 180)

b. Relevance of financial ratios shown above to investment decisions.

Short-term solvency or liquidity ratios

Short-term solvency shows the state of capital management. Google is most suited to meet its current debt obligations. Her current assets are four times the value of its current debt. Microsoft whose current assets are two times the value of its current liabilities follows Google. BT Group has the worst practice in capital management. The current liability is almost 25% more the value of its current assets. This is contrary to other industry firms such as Microsoft and Google. Wal-Mart and General Electric have average capital management strategies with current assets and current liabilities almost balancing out. Short-term solvency or liquidity ratios expressed through the currents reflects how the working capital is managed. Thus, Google is the best-managed company in the financial year (Brigham & Houston 180).

Long-term solvency or financial leverage ratios

Long term solvency or financial leverage ratio shows how a firm would handle insolvency or bankruptcy through comparisons of total assets and total liabilities. The expression indicates a business’ position in the long run. Google is the most stable company among the five companies followed by Wal-Mart, Microsoft, General Electric and finally, BT Group. The worse off company, BT Group, would have 94% of her assets to settle her debts while Google only 18% of the properties meet the liabilities. Thus, investments on Google are 82% protected by the assets (Brigham & Houston 256).

Asset management or turnover ratios

Asset Turnover

Total revenue expressed as a segment of total assets shows the value of assets used in revenue generation. Revenue generation is about 55% of the total assets for Microsoft and Google while 73%for BT Group. Wal-Mart has the highest asset turnover at 230%. Wal-Mart has high sale volumes, a reflection of the retail sector. Finally, General Electric has the least asset conversion rate. The company uses less than 25% of its assets in revenue generation (Brigham & Houston 250).

Profitability ratios

The most profitable company among the five companies is Google with a value of 0.21. The least profitable company is Wal-Mart with a value of 0.03. Profitability margin indicates the share of sales that translates into profits. However, Google falls under telecommunication while Wal-Mart retail business (Brigham & Houston 250).

Market value ratios

This part defines the capital structure of companies. Capital structures show a company’s valuation as expressed in market to book ratios. It is important to note that various parameters control the share value of listed businesses. The market to book ratio shows robust confidence in BT Group subsequently followed by Google, Wal-Mart, General Electric and eventually Microsoft. This representation is an expectation of wealth creation for a company. Thus, the BT Group is the most valued company by investors (Brigham & Houston 250).

Conclusion

This analysis presents two investment models for investors with a view of investing for dividend returns or growth of shares. Microsoft, Google and Wal-Mart offer less risky investment. The companies have good returns in the short run. The short-term solvency for Wal-Mart is characteristic of the retail sectors hence the high asset turnover. Wal-Mart converts her assets quickly making it a less risky investment. The BT Group is high-risk business however investor confidence is boosted by the company’s ability where 70% of the assets translate into sales. Increasing investment guarantees increased sales in this scenario. However, the risk is high due to increased liabilities related to the investments.

Works Cited

BT Group, BT Group Annual 2015, 2016. Web. Retrieved on 6th March 2012 from:

Brigham, EF & Houston, J 2012, Fundamentals of financial management, 13th edn, South Western Cengage Learning, Mason.

General Electric, General Electric 2014, 2016. Web. Retrieved on 6th March 2012 from: http://www.ge.com/ar2015/assets/pdf/GE_AR15.pdf

Google, Alphabet Announces Fourth Quarter and Fiscal Year 2015 Results. 2016.Web. Retrieved on 6th March 2012 from: https://abc.xyz/investor/news/earnings/2015/Q4_google_earnings/index.html

http://www.btplc.com/Sharesandperformance/Annualreportandreview/pdf/2015_BT_Annual_Report.pdf

Microsoft, Annual Report 2015, 2016.Web. Retrieved on 6th March 2012 from: https://www.microsoft.com/investor/reports/ar15/index.html

Wal-Mart, Wal-Mart Annual Report 2015, 2016.Web. Retrieved on 6th March 2012 from: http://www.corporatereport.com/walmart/2015/ar/_downloads/walmart_2015_ar.pdf