Examine various financial reports of a publicly traded company and conduct a financial ratio analysis to understand a company’s financial position as compared to industry averages to demonstrate your ability to understand a company’s financial health and analyze ways to improve in areas revealed as being below industry average.
Overview
For this Performance Task Assessment, you will examine various financial reports of a publicly traded company and conduct a financial ratio analysis to understand a company’s financial position as compared to industry averages to demonstrate your ability to understand a company’s financial health and analyze ways to improve in areas revealed as being below industry average.
Requirements:
MF002.Final.Assess.Inst.
Overview
For this Performance Task Assessment, you will examine various financial reports of a publicly traded company and conduct a financial ratio analysis to understand a company’s financial position as compared to industry averages to demonstrate your ability to understand a company’s financial health and analyze ways to improve in areas revealed as being below industry average.
Assessment Submission Length: 4- to 6-page financial health assessment report (excluding title page and references) and financial ratio calculations in Excel
To complete this Assessment, do the following:
Ensure that all necessary information has been entered into the MF002.Assessment.Template_Part1 file. (As a reminder, refer to problem 4-23 on pages 143–144 of Fundamentals of Financial Management [Brigham & Houston, 2022]. Note that you will utilize the numbers provided in the problem but will not be answering any of the questions in this Assessment. All formulas are included in the MF002.Assessment.Template.Part1 file.)
In the MF002.Assessment.Template.Part2 file, complete your work on the Assessment, using your Pre-Assessment submission as a starting point and incorporating any feedback, as appropriate.
Be sure to adhere to the indicated assignment length.
Before submitting your Assessment, carefully review the rubric. This is the same rubric the assessor will use to evaluate your submission and it provides detailed criteria describing how to achieve or master the Competency. Many students find that understanding the requirements of the Assessment and the rubric criteria help them direct their focus and use their time most productively.
Financial Health Assessment: Barry Computer Company
For this Performance Task Assessment, you will act as a consultant hired by the operations director of the Barry Computer Company to do a financial analysis and comparison to the industry. You will conduct a financial ratio analysis to gain a good understanding of the company’s financial performance and will then write up an evaluation of the organization’s financial health, as well as your recommendations for how specific ratios can be improved within the next 3–5 years. In your report, be sure to address the following two sections, including relevant citations from the Learning Activities, and/or other appropriate academic sources to support your work.
Part 1 – Financial Information (2-3 pages, plus Excel Spreadsheet)
Calculate the following ratios for the Barry Computer Company using the Excel spreadsheet provided.
Analyze computations to determine which ratios are above and below their industry averages, and for each, provide a brief explanation as to why that might be the case.
Evaluate the financial health of the organization, including in what areas the organization could improve.
Part 2 – Recommendations (2-3 pages)
For each ratio that negatively falls outside the industry standards, develop at least one appropriate recommendation for the Barry Computer Company to improve financial performance over time (over the next 3–5 years to meet industry standards).
Assess limitations of the exclusive use of ratio analysis for evaluating financial performance. In your assessment, describe any qualitative factors that could also complement the ratio analysis and play an important role in improving financial performance.
Additional Notes & References
Learning Activity 1: Financial Appraisals
When managers review financial ratios for an organization, their goal is to assess the financial condition of the company and identify areas in which it is performing below the industry standards. Then, the managers can take that information and provide recommendations to improve those measures and better align the organization with industry averages. In this Learning Activity, you will examine the use of financial ratios to assess an organization’s performance.
BOOK EXCERPT: ANALYSIS OF FINANCIAL STATEMENTS
Brigham, E. F., & Houston, J. F. (2022). Analysis of financial statements. In Fundamentals of financial management(16th ed., pp. 128–150). Cengage Learning.
ARTICLE: FINANCIAL RATIOS FOR ASSESSMENT OF OPERATIONS SUCCESS IN ENTERPRISES OF MACEDONIAN HOSPITALITY INDUSTRY
Petroska-Angelovska, N., & Ackovska, M. (2016). Financial ratios for assessment of operations success in enterprises of Macedonian hospitality industry. Economic Development / Ekonomiski Razvoj, 18(3), 108–119.
Learning Activity 2: Making Decisions Using Ratio Analysis
In this Learning Activity, you will explore how ratio analysis can be a beneficial tool to you as a manager. Ratio analysis can help you understand the financial results and trends that occur over time. It can help you identify key indicators of organizational performance. After uncovering where the strengths and weaknesses are using ratio analysis, you can develop better strategies and initiatives based on that data.
The following is a tip on the relationship between decision making and ratio analysis. In the Excel sheet provided in the Assessment, you will fill in two financial statements: the balance sheet and the income statement. To find out how a decision may affect the ratios, you can change the figures from the financial statements. For example, if the inventory turnover ratio (5 times a year), which is calculated by dividing sales into inventories, is slightly below industry standards (6.7 times per year), how can this ratio be improved? To find out, go to the Excel sheet and change the price of inventory to be slightly lower (meaning you will have less inventory on hand), and you will find that the ratio improves. Now, increase the figure of sales slightly, and you will find that the ratio improves as well. The ratio would worsen if you had made your adjustments in the opposite directions. One strategy you might recommend to improve the inventory turnover ratio within 3 years would be to increase the numerator (top number: sales), decrease the denominator (bottom number: amount of inventory), or both. Whatever your recommendations, you will need to explain in detail why your suggestion is the best course of action.
ARTICLE: 4 WAYS TO STRENGTHEN YOUR BUSINESS USING FINANCIAL RATIOS
Business Development Bank of Canada. (n.d.). 4 ways to strengthen your business using financial ratios.
ARTICLE: RATIO ANALYSIS OF FINANCIAL STATEMENTS: ANALYSE TO DRIVE BETTER PERFORMANCE
Biedron, R. (2021, July 13). Ratio analysis of financial statements: Analyse to drive better performance. Planergy.
WEB RESOURCE: USING FINANCIAL RATIOS FOR ANALYSIS
Lumen Learning. (n.d.). Using financial ratios for analysis. In Boundless accounting. https://courses.lumenlearning.com/boundless-accounting/chapter/using-financial-ratios-for-analysis/
Learning Activity 3: The Limitations of Ratio Analysis
As with any financial analysis technique, there are several limitations of ratio analysis. It is crucial to know these limitations to avoid making misleading conclusions. In this Learning Activity, you will consider the limitations of ratio analysis.
ARTICLE: WHAT ARE THE LIMITATIONS OF RATIO ANALYSIS?
AccountingTools. (2021, April 11). What are the limitations of ratio analysis?http://www.accountingtools.com/questions-and-answers/what-are-the-limitations-of-ratio-analysis.html
MF002.Rubric.Check
MF002: Financial Analysis: Evaluate a company’s financial health and areas for improvement based on financial ratios
Part 1: Financial Information
Learning Objective 1.1.1: Analyze financial ratios of an organization against its industry averages
Rubric Criteria – Calculate the ratios for the Barry Computer Company using the Excel spreadsheet provided.
Response provides accurate calculations of the ratios.
Learning Objective 1.1.2: Analyze financial ratios of an organization against its industry averages
Rubric Criteria – Analyze computations to determine which ratios are above and below their industry averages, and for each, provide a brief explanation as to why that might be the case.
Response provides a thorough and detailed analysis of computations to determine which ratios are above and below their industry averages, including a brief explanation as to why.
Learning Objective 1.2: Evaluate an organization’s financial health based on financial ratios
Rubric Criteria – Evaluate the financial health of the organization, including in what areas the organization could improve.
Response provides a thorough and detailed evaluation of the financial health of the organization, including in what areas the organization could improve.
Part 2: Recommendations
Learning Objective 2.1: Develop recommendations to improve a company’s financial performance to meet industry standards
Rubric Criteria – For each ratio that negatively falls outside the industry standards, develop at least one appropriate recommendation for the Barry Computer Company to improve financial performance over time (over the next 3–5 years to meet industry standards).
Response provides a thorough and detailed proposal of at least one appropriate recommendation to improve financial performance over time (over the next 3–5 years to meet industry standards) for each ratio that negatively falls outside the industry standards.
Learning Objective 2.2: Assess limitations of the use of ratio analysis
Rubric Criteria – Assess limitations of the exclusive use of ratio analysis for evaluating financial performance, including any qualitative factors that could also complement the ratio analysis and play an important role in improving financial performance.
Response provides a thorough and detailed assessment of the limitations of the exclusive use of ratio analysis for evaluating financial performance, including any qualitative factors that could also complement the ratio analysis and play an important role in improving financial performance.
Professional Writing
Professional Writing: Presentation of Content
Content is clear, logical, and well-organized. Writing is free from spelling, punctuation, and grammar/syntax errors. Tone is professional, scholarly, and free from bias. Content presented reflects original writing and proper paraphrasing and a style consistent with the appropriate professional setting/workplace context.
Professional Writing: Source Credibility & Attribution of Ideas
Writing demonstrates full adherence to reference requirements, including the use of credible evidence to support a claim, with appropriate source attribution (when applicable) and references. There are no errors in formatting and no missing source attributions or references.
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