Business Ratio Computation for Persistent Sys
Background
An organization cannot effectively design or implement strategic initiatives without an excellent understanding of its financial health. This understanding can only be determined by properly analyzing financial statements. In this assignment, you will evaluate the financial health of three organizations by examining the organizations’ financial statements which document their assets, liabilities, equity, revenues, and expenses.
A company’s financial performance is broken down into four main performance categories: profitability, liquidity, asset utilization, and debt/leverage. The most effective way to analyze financial statements and measure performance in these critical areas is to compute and interpret financial ratios.
Instructions
You are a senior financial analyst for Capital Financial, a fictitious investment firm based in Dallas, TX. Capital Financial would like to allocate at least $500,000 of their capital to purchase shares in a firm in the software section within the technology sector. As the analyst, you must make an informed recommendation to the senior leadership team in a report that addresses the following:
Identify three similarly sized firms (small to mid-cap) in the software section of the technology sector.
For each of the three firms, calculate three ratios from each of the four performance categories (12 ratios for each company) and incorporate them into the body of your report.
Select the ratio from each performance category that you feel is essential to use when comparing the firms. Use the ratio selected from each category to create a bar chart that illustrates the firms’ performance relative to one another.
Explain why the ratios you selected are the best for determining the strength of the three firms.
Use your ratio computations to describe each firm’s level of strength in each performance category.
Provide a final recommendation indicating which of the three firms Capital Financial should purchase shares in.
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