MBA 520 Module Two Financial Statement Analysis Worksheet

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The main goal of financial statement analysis is to use past and current performance to identify changes and trends that will affect a company. Financial ratios are a widely used form of financial analysis in which the relationship between two or more line items is analyzed to evaluate a company’s performance. The calculations you practice in this assignment will be applicable in completing Milestone One, specifically determining recent financial performance and current financial health.

 

Prompt

Reference the information found in the Module Two Financial Statements Analysis Data PDF located in the Assignment Guidelines and Rubrics folder to complete the following. Once you have calculated the ratios asked for using the data in the PDF, provide a brief summary of how the ratios are used and why they are important. Once you have completed the calculations, provide a brief, two- to four-sentence rationale for how these calculations can be used in analyzing the financial position of a company and why they are important. Your rationale should explain what information the ratio provides to the reader and how the reader may use that information. Use the Shapiro Library, your text, and the non-graded discussion forum in this module to ask questions of your peers to inform your responses to the questions below.

 

Before beginning this assignment, you will need to download and/or print the Module Two Financial Statements Analysis Data PDF in order to complete the assignment.

 

 

1. (12.5 points) Calculate XYZ’s 2013 current and quick ratios based on the projected balance sheet and income statement data.

 

 

 

2. (12.5 points) Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

 

 

 

3. (12.5 points) Calculate the 2013 debt-to-assets and times-interest-earned ratios.

 

 

 

4. (12.5 points) Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).

 

 

 

5. (12.5 points) Calculate the 2013 price/earnings ratio, and market/book ratio.

 

 

 

6. (12.5 points) Use the extended DuPont equation to provide a summary and overview of XYZ’s financial condition as projected for 2013.

 

 

 

7. (12.5 points) Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change “ripple through” the financial statements (shown in thousands below) and influence the stock price?

 

Accounts receivable $878 Debt $1,545

Other current assets 1,802

Net fixed assets 817 Equity 1,952

Total assets $3,497 Liabilities plus equity $3,497

 

First, we need to calculate XYZ’s daily sales.

 

Daily sales = Sales / 365

Daily sales = $7,035,600 / 365

Daily sales = $19,275.62

 

Target A/R = Daily sales × Target DSO

Target A/R = $19,276 × 32

Target A/R = $616,820

 

Freed-up cash = old A/R – new A/R

Freed-up cash = $878,000 – $616,820

Freed-up cash = $261,180

 

8. (12.5 points) Provide a brief summary or rationale of how these ratios are used, and why they are important.

 

Worksheet adapted from Brigham, E., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning.

 

Worksheet adapted from Brigham, E., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning.