Question
Before you start analysing the firm's financial statements, you will need to obtain industry averages for each of the standard financial statement ratios. They are
Before you start analysing the firm's financial statements, you will need to obtain industry averages for each of the standard financial statement ratios. They are provided below.
2019 | 2020 | 2021 | Industry Averages | |
Profitability Ratios | ||||
Return on equity | 21.3% | 21.2% | 19.6% | 22.0% |
Return on Capital employed | 12.9% | 13.5% | 13.5% | 12.8% |
Operating Profit Margin | 14.7% | 18.2% | 23.0% | 14.4% |
Gross Profit Margin | 54.7% | 52.0% | 49.3% | 44.8% |
Efficiency Ratios | ||||
Average Inventory Turnover period | 79.8 | 83.3 | 93.0 | 78.8 |
Average settlement period for Accounts Receivable | 28.0 | 27.0 | 28.4 | 30.0 |
Average settlement period for Accounts Payable | 39.9 | 48.8 | 62.4 | 37.3 |
Sales Revenue to Capital Employed | 87.3% | 74.2% | 59.0% | 87.0% |
Liquidity Ratios | ||||
Current Ratio | 2.82 | 2.88 | 2.95 | 4.60 |
Acid Test Ratio | 2.03 | 2.14 | 2.25 | 2.76 |
Leverage Ratios | ||||
Gearing Ratio | 61.7% | 58.5% | 55.2% | 61.4% |
Interest Cover Ratio | 3.94 | 4.38 | 4.65 | 5.75 |
Investment Ratios | ||||
Dividend Payout Ratio | 67.8% | 59.9% | 57.1% | 40.8% |
Dividend Yield | 6.61% | 6.01% | 5.08% | 4.70% |
Earnings Per Share | $0.19 | $0.21 | $0.20 | $0.28 |
P/E Ratio | 10.4 | 9.8 | 11.5 | 11.2 |
1) Analyse the firm's performance over the last 3 years. You should pay attention to all the 16 ratios shown above. Identify any strengths or weakness, in terms of positive or negative trends. a. Profitability Ratios b. Efficiency Ratios c. Liquidity Ratios d. Leverage Ratios e. Investment Ratios 2) Analyse the firm's performance in comparison to Industry averages for each of the ratios. Identify any strengths or weaknesses. a. Profitability Ratios b. Efficiency Ratios c. Liquidity Ratios d. Leverage Ratios e. Investment Ratios
3) Summarise the firm's performance in terms of profitability, efficiency, liquidity, leverage & potential for investment.
4) Briefly explain to the client any possible problems with your analysis that client should bear in mind. For example, are there any conclusions you have come to that might be unreliable because of the nature of this analysis, and if so, why?
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