February 23, 2022

Conduct a Financial assessment on a typical organization of your choice.? Attempt to obtain a copy of their balance sheet,

Conduct a Financial assessment on a typical organization of your choice. Attempt to obtain a copy of their balance sheet, income statement, and any other pertinent information you can obtain. If obtaining the information becomes a difficult challenge, try another organization. If all else fails, use the attached form and fill in representative, best-guess numerical values for each line item. If you feel that a line item is not pertinent, or can be eliminated, do so. Worst-case and as a final resort, contact me. Don't wait until the last minute. Start early. Using the model in Chapter 4 of Known, Martin, and Petty, for the elements of your assessment, put together an APA paper assessing the organization's financial health. Conform to APA standards. The paper should identify at least six issues on to base your assessment. Obviously more is better.

Sheet1

TABLE 21-1 Financial Ratio Analysis
Ratio	Value Less Than 1	Value = 1	Value More Than 1
Current ratio = current assets/current liabilities	Debts greater than assets; potentially major problems	Debts and assets are equal	Assets greater than debts; current ratio of 2 is desirable
Acid-test ratio = quick current assets / current liabilities	Cash flow could be a problem	Business is in satisfactory condition	Business is in good financial condition
Operating ratio = (COGS+OPERATING EXPENSES)/NET SALES	Desirable	Marginal	Undesirable
Gross profit margin ratio = (Gross profit from sales)/net sales	0.25 to 0.40 is industry average	Uncommon except for businesses with low turnover and high investment	Undesirable
Asset turnover ratio = net sales / average total assets	0.40 to 1.0 is industry average	Uncommon	Uncommon
Total debt to total assets ratio = total liabilities / total assets	0.05 to 0.75 is industry average	Debt ratio is too high	Debt ratio is dangerously high

XYZ Balance sheet

https://formswift.com/sem/static-non-state/balance-sheet?utm_source=google&utm_medium=cpc&utm_campaign=static__balance_sheet__search&u_adgroup=balance_sheet__b&u_device=c&u_country=us&u_producttype=formswiftdotcom&u_product=balance_sheet&u_landingpage=2019aa9&headline=Create%20A%20Free%20Balance%20Sheet%20Online&u_sitelinkid=53908&gclid=CjwKCAiA6seQBhAfEiwAvPqu1_O0V5Bqq1LaSdiEDNly0A1-TCu5KAGyXcThOUkccE2vSJrdXu46fhoCCJUQAvD_BwE			FormSwift
Balance Sheet for
Assets
	Current Assets
		Cash
		Accounts Receivable
		Inventory
		Prepaid expenses
		Notes receivable
		Other current assets
		Total current assets
	Fixed assets
		Long-term investments
		Land
		Building
		Machinery and fixtures
		Other fixed assets
		Net fixed assets
	Other assets
		Goodwill
	Total assets
Liabilities and equity
	Current liabilities
		Accounts payable
		Accrued wages
		Accrued payroll taxes
		Accrued employee benefits
		Interest payable
		Short-term notes
		Current portion of long-term debt
		Total current liabilities
	Long term liability
		Mortgage
		Other long-term liabilities
		Total long-term liabilities
	Owners equity
		Paid in capital
		Net income
		Total equity
	Total liabilities and equity
Please make sure that total assets equals total liabilities and equity in your balance sheet.
If the difference. The two size of the balance sheet is greater than zero, please review the values entered.

https://formswift.com/sem/static-non-state/balance-sheet?utm_source=google&utm_medium=cpc&utm_campaign=static__balance_sheet__search&u_adgroup=balance_sheet__b&u_device=c&u_country=us&u_producttype=formswiftdotcom&u_product=balance_sheet&u_landingpage=2019aa9&headline=Create%20A%20Free%20Balance%20Sheet%20Online&u_sitelinkid=53908&gclid=CjwKCAiA6seQBhAfEiwAvPqu1_O0V5Bqq1LaSdiEDNly0A1-TCu5KAGyXcThOUkccE2vSJrdXu46fhoCCJUQAvD_BwE

XYZ Income

https://formswift.com/builder.php?documentType=income-statement&ses=02e40e6f0896d5eee72a23f4035164fb&key=267998070&utm_source=google&utm_medium=cpc&utm_campaign=static__income_statement__b&u_adgroup=income_statement&u_device=c&u_country=us&u_producttype=formfindrdotcom&u_product=income_statement&u_landingpage=2018aa2&headline=Create+A+Free+Income+Statement+Online&u_sitelinkid=88292&gclid=CjwKCAiA6seQBhAfEiwAvPqu12OkzuJGHgFIr0e0p1k4QSP7P48IxMk7ZbGKkIoxS78FimeAIbqC6xoCyvYQAvD_BwE#0

FormSwift

Income statement

For the period

Ended

Revenues

Products

Less returns and allowances

Services

Other

Total revenue

Costs

Products

Services

Other

Total cost

Gross profit

Operating expenses

Gen. and administrative

Insurance

Non-recurring

Payroll taxes

Rent

Research and development

Salaries and wages

Sales and marketing

Utilities

Other

Total operating expenses

Operating income

Not operating, or other

Interest revenue

Interest expenses

Gain on sale of assets

Loss on sales of assets

Gain from legal action

Loss from legal action

Depreciation and amortization

Other game

Other loss

Total not operating other

Pretax income

Taxes

Income tax expense

Net income

Sheet3

Sheet4

Sheet5

Sheet6

Sheet7

Sheet8

Foundations of Finance

Tenth Edition

Chapter 4

Evaluating a Firm’s Financial Performance

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Learning Objectives

4.1 Explain the purpose and importance of financial analysis.

4.2 Calculate and use a comprehensive set of measurements to evaluate a company’s performance.

4.3 Describe the limitations of financial ratio analysis.

The Purpose of Financial Analysis

Financial analysis using ratios

A popular way to analyze the financial statements is by computing ratios. A ratio is a relationship between two numbers, e.g., a given ratio of A:B = 30:10 means A is 3 times B.

A ratio by itself may have no meaning. Hence, a given ratio is compared to

ratios from previous years

ratios of other firms or leaders in the same industry

See Figure 4.1 for a financial analysis example.

Figure 4.1 Financial Statement Data by Industry Norms for Software Publishers

Uses of Financial Ratios: Within the Firm (1 of 3)

Identify deficiencies in a firm’s performance and take corrective action.

Evaluate employee performance and determine incentive compensation.

Compare the financial performance of the firm’s different divisions.

Uses of Financial Ratios: Within the Firm (2 of 3)

Prepare, at both firm and division levels, financial projections.

Understand the financial performance of the firm’s competitors.

Evaluate the financial condition of a major supplier.

Uses of Financial Ratios: Within the Firm (3 of 3)

Financial ratios are used by

Lenders in deciding whether or not to lend to a company.

Credit-rating agencies in determining a firm’s credit worthiness.

Investors (shareholders and bondholders) in deciding whether or not to invest in a company.

Major suppliers in deciding to whether or not to extend credit to a company or in designing the specific credit terms.

Measuring Key Financial Relationships

Question 1: How Liquid Is the Firm? Can It Pay Its Bills?

A liquid asset is one that can be converted quickly and routinely into cash at the current market price.

Liquidity measures the firm’s ability to pay its bills on time. It indicates the ease with which noncash assets can be converted to cash to meet the financial obligations.

How Liquid Is the Firm?

Liquidity is measured by two approaches:

Comparing the firm’s current assets and current liabilities

Examining the firm’s ability to convert accounts receivables and inventory into cash on a timely basis

Measuring Liquidity: Perspective 1

Compare a firm’s current assets with current liabilities using:

Current Ratio

Acid Test or Quick Ratio

Table 4.1 Walmart Income Statement for the Year Ending January 31, 2018 (expressed in millions, except per share data) (1 of 2)

Sales	$ 500,343
Cost of goods sold	(373,396)
Gross profit	$ 126,947
Operating expenses:	Blank
Selling, general and administrative expenses	$ (95,981)
Depreciation expenses	(10,529)
Total operating expenses	$(106,510)
Operating income (earning before interest and taxes)	$ 20,437
Interest expense	(2,178)
Non-operating losses	(3,136)
Earnings before taxes (taxable income)	$ 15,123
Income taxes	(5,261)
Net income (earnings available to common shareholders)	$ 9,862

Table 4.1 Walmart Income Statement for the Year Ending January 31, 2018 (expressed in millions, except per share data) (2 of 2)

Additional information:	Blank
Number of shares outstanding (millions)	3,007
Earnings per share	$ 3.28
Dividends paid to stockholders	$ 6,124
Dividends per share	$ 2.04

Table 4.2 Walmart’s Balance Sheet for the Year Ending January 31, 2018 (expressed in millions) (1 of 2)

Cash and cash equivalents	$ 6,756
Accounts receivable	5,614
Inventories	43,783
Prepaid expenses and other current assets	3,511
Total current assets	$ 59,664
Gross plant and equipment	$202,298
Less accumulated depreciation	(87,480)
Net plant and equipment	$114,818
Goodwill and other intangible assets	30,040
Total assets	$ 204,522

Table 4.2 Walmart’s Balance Sheet for the Year Ending January 31, 2018 (expressed in millions) (2 of 2)

Liabilities and Equity	Blank
Accounts payable	$ 46,510
Accrued liabilities	24,031
Short-term notes	9,662
Total current liabilities	$ 80,203
Long-term debt	45,179
Total debt	$125,382
Stockholders' equity	Blank
Common stock (par value)	$ 295
Paid-in capital	2,648
Retained earnings	76,197
Total equity	$ 79,140
Total liabilities and equity	$ 204,522

Current Ratio

Current ratio compares a firm’s current assets to its current liabilities.

Walmart has $0.74 in current assets for every $1 in current liabilities. Walmart’s liquidity is slightly less than that of Target, which has a current ratio of 0.95.

Acid Test or Quick Ratio

Quick ratio compares cash and current assets (minus inventory) that can be converted into cash during the year with the liabilities that should be paid within the year.

Walmart has 15 cents in quick assets for every $1 in current debt. Walmart is slightly less liquid than Target, which has 20 cents for every $1 in current debt.

Measuring Liquidity: Perspective 2

Measures a firm’s ability to convert accounts receivable and inventory into cash:

Days in Receivables or Average Collection Period

Inventory Turnover

Days in Receivables (Average Collection Period)

How long does it take to collect the firm’s receivables?

Walmart (at 10.24 days) is slightly slower than Target (at 9.56 days) in collecting accounts receivable.

Accounts Receivable Turnover

How many times are the accounts receivable “rolled-over” each year?

The conclusion is the same — Walmart (35.65X) is slightly slower than Target (38X) in collecting accounts receivable.

Days in Inventory

How long is the inventory held before being sold?

Walmart carries inventory for a shorter time (42.80 days) than Target (61.81 days).

Inventory Turnover

How many times are the firm’s inventories sold and replaced during the year?

The conclusion is the same—Walmart moves inventory much quicker (8.53X) than Target (5.91X).

Question 2: Are the Firm’s Managers Generating Adequate Operating Profits from the Company’s Assets?

This question focuses on the profitability of the assets in which the firm has invested. We consider the following ratios to answer the question:

Operating Return on Assets

Operating Profit Margin

Total Asset Turnover

Fixed Assets Turnover

Figure 4.2 Walmart Operating Profits Resulting from Asset Investments

Operating Return on Assets (ORA)

O R A indicates the level of operating profits relative to the firm’s total assets.

Thus Walmart managers are generating 10 cents of operating profit for every $1 of assets, which is less than Target (11.1%).

Disaggregation of Operating Return on Assets

Calculated as follows:

Managing Operations: Operating Profit Margin (O P M)

O P M examines how effective the company is in managing its cost of goods sold and operating expenses that determine the operating profit.

Target managers are better than Walmart in managing the cost of goods sold and operating expenses, as the Operating Profit Margin for Target is 6.0% compared to Walmart at 4.1%.

Managing Assets: Total Asset Turnover

This ratio measures how efficiently a firm is using its assets in generating sales.

Walmart is generating $2.45 cents in sales for every $1 invested in assets, which is higher than Target (1.84X).

Managing Assets: Fixed Asset Turnover

Examines efficiency in generating sales from investment in “fixed assets.”

Walmart generates $4.36 in sales for every $1 invested in fixed assets, which is much higher than Target (2.87X).

Figure 4.3 Analysis of Walmart’s Operating Return on Assets

Question 3: How Is the Firm Financing Its Assets?

Here we examine the question: Does the firm finance its assets by debt or equity or both? We use the following two ratios to answer the question:

Debt Ratio

Times Interest Earned

Debt Ratio

This ratio indicates the percentage of the firm’s assets that are financed by debt (implying that the balance is financed by equity).

Walmart finances 61% of its assets by debt and 39% by equity compared to Target financing 70% of its assets by debt.

Times Interest Earned (1 of 2)

This ratio indicates the amount of operating income available to service interest payments.

Walmart’s operating income is 9 times the annual interest expense and higher than Target (6.47X) due to its relatively higher operating profits.

Times Interest Earned (2 of 2)

Note

Interest is not paid with income but with cash.

Oftentimes, firms are required to repay part of the principal annually.

Thus, times interest earned is only a crude measure of the firm’s capacity to service its debt.

Question 4: Are the Firm’s Managers Providing a Good Return on the Capital Provided by the Company’s Shareholders?

This is analyzed by computing the firm’s accounting return on common stockholder’s investment or return on equity (R O E).

Note: Common equity includes both common stock and retained earnings.

Return On Equity (ROE)

Owners of Walmart are receiving a 12.5% return compared to Target’s 25%.

One of the reasons for lower ROE is the lower operating return on assets (10.0% for Walmart v. 11.1% for Target).

A lower return on the firm’s assets will always result in a lower return on equity and vice versa.

Also, Walmart uses less debt (61% for Walmart v. 70% for Target).

Higher debt translates to higher ROE under favorable business conditions.

Figure 4.4 Return on Equity Relationships for the Walmart Company

Question 5: Are the Firm’s Managers Creating Shareholder Value?

We can use two approaches to answer this question:

Market value ratios (P/E)

Economic Value Added (E V A)

These ratios indicate what investors think of management’s past performance and future prospects.

Price/Earnings Ratio

Measures how much investors are willing to pay for $1 of reported earnings.

Investors are willing pay more for Walmart for every dollar of earnings per share compared to Target ($26.22 for Walmart versus $14.07 for Target).

Price/Book Ratio

Compares the market value of a share of stock to the book value per share of the reported equity on the balance sheet.

A ratio greater than 1 indicates that the shares are more valuable than what the shareholders originally paid. The Walmart ratio of 3.27X is lower than Target ratio of 3.53X, suggesting that Target is perceived as having better growth prospects relative to its risk.

Summary of Ratios

Table 4.3 Walmart and Target: Financial Ratio Analysis

The Limitations of Financial Ratio Analysis

It is sometimes difficult to identify industry categories or comparable peers.

The published peer group or industry averages are only approximations.

Industry averages may not provide a desirable target ratio.

Accounting practices differ widely among firms.

A high or low ratio does not automatically lead to a specific conclusion.

Seasons may bias the numbers in the financial statements.

Key Terms (1 of 2)

Accounts receivable turnover ratio

Acid-test (quick) ratio

Asset management

Current ratio

Days in inventory

Days in receivables (average collection period)

Debt ratio

Financial ratios

Fixed asset turnover

Inventory turnover

Key Terms (2 of 2)

Liquidity

Operating profit margin

Operating return on assets (OROA)

Operations management

Price/book ratio

Price/earnings ratio

Return on equity

Times interest earned

Total asset turnover

Total common equity (total stockholder equity)

This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

number

income

net

current assets59,664

Current ratio===.74

current liabilities80,203

cash+accounts receivable12,370

Acid-test ratio===0.15

current liabilities80,203

accounts receivableaccounts receivable

Days in receivables==

annual credit sales

daily credit sales

365

æö

ç÷

èø

5,6145,614

===10.24 days

500,343×.40

548

360

annual credit sales

Accounts receivable turnover=

accounts receivable

$500,343*.40

==35.65

$5,614

inventory

Days in inventory=

annual cost of goods sold

365

$43,783$43,783

42.80days

$373,396

$1,023

365

===

cost of goods sold

Inventory turnover

inven

tory

373,396

Inventory turnover==8.53X

43,783

operating profits

Operating return on assets=

total assets

20,437

0.1010%

204,522

===

Operating return on assetsoperating prof

it margin total asset turnover

=´

operating profitssales

Operating return on assets=×

salestotal assets

operating profits$20,437

Operating profit margin==0.04=4.1%

sales$500,343

Total asset turnover==2.45X

total assets$204,522

sales$500,343

Fixed assets turnover==4.36X

net fixed assets$114,818

total debt$125,382

Debt ratio==0.61=61%

total assets$204,522

operating profits20,437

Times interest earned==9.38X

interest expense2,178

net income

Return on equity=

total common equity

net income$9,862

Return on equity = ==0.125=12.5%

total common equity$79,140

market price per share$86.00

Price/earnings ratio==26.22X

earnings per share$3.28

market price per share86

Price/book ratio==3.27X

equity book value per share26.3

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Conduct a Financial assessment on a typical organization of your choice.? Attempt to obtain a copy of their balance sheet,

Sheet1

XYZ Balance sheet

XYZ Income

Sheet3

Sheet4

Sheet5

Sheet6

Sheet7

Sheet8

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