Financial statement analysisis the process of analyzing a company's financial statements to make better economic decisions. The process for financial statement analysis includes specific techniques for evaluating risks, performance, and future prospects of an organization.

This assignment is separated into three parts and based on a fictitious company. In Part 1, you will use the Balance Sheet and Income Statement to calculate the five categories of ratios. In Part 2, you will calculate and explain the significance of the liquidity, activity, financing, profitability, and market value ratios, and provide a year-to-year comparison of assessed financial trends. In Part 3, you will compose an analytical study to assist the CEO of your company to determine if ABC Company, a technical company dealing with software and hardware, would be a good investment as an acquisition.

Part 1

You will use thisExcelworkbookwith two worksheets to assist you in completing this part of the assignment. This Excel workbook is to be submitted with your paper. The first worksheet is the Balance Sheet and Income Statement for ABC Company. You will use the information to complete the assignment. The second worksheet contains a breakdown of categories of ratios where you will complete the calculations for each ratio. You will also enter the formula written out as to what information you have used to do the calculations.

You are going to use the five classifications of financial ratios to assess the financial performance of ABC Company.

Team Responsibilities

A team member is typically assigned one of the five classifications (i.e., student A will be responsible for liquidity, student B will be responsible for activity, and so on). You will present a definition of the classification by citing the course text and other scholarly sources.

The team leader (compiler of all member analyses) may need to be assigned a classification as well; team size will dictate this.

Your paper, based upon your team's collective analysis, should include a measure of and analysis of financial outcomes based on the ratios for each financial ratio classification (i.e., the liquidity classifications of ratios are based upon the quick and current ratio outcomes).

You will calculate ratios for each classification for the 3 years of data (i.e., the current ratio may have been 1.5 the first year, 1.35 the second year, and .75 in the most recent year). It is based on these results that you will measure financial performance, or trends, from one year to the next. It is imperative that the ratios-numbers, and quantitative outcomes, support your analysis.

1. Using the data from the Income Statement and Balance Sheet, provide the correct calculation of the liquidity ratios and an assessment of the company's ability to maintain liquidity and the management of current assets and current liabilities. Include the proper assessment of outcomes as positive or negative trends when all ratio outcomes are factored as a group.

Liquidity Ratios

• Current Ratio
• Quick Ratio

1. Using the data from the Income Statement and Balance Sheet, provide the correct calculation of the activity ratios and an assessment of the company's ability to maintain liquidity. Include the proper assessment of outcomes as positive or negative trends when all four ratio outcomes are factored as a group.

Activity Ratios

• Inventory Turnover
• Accounts Receivables Turnover
• Total Asset Turnover
• Average Collection Period

1. Using the data from the Income Statement and Balance Sheet, provide the correct calculation of the financing ratios. Include the proper assessment of outcomes as positive or negative trends when all three ratio outcomes are factored as a group.

Financing Ratios

• Debt Ratio
• Debt-to-Equity Ratio
• Times Interest Earned Ratio

1. Using the data from the price per share data, the Income Statement, and the Balance Sheet, provide the correct calculation for the market value ratios below.

Market Value Ratios

• Earnings per Share (EPS)
• Price Earnings (PE)

1. Using the data from the Income Statement and Balance Sheet, provide the correct calculation of these four profitability ratios and an assessment of the company's ability to maintain if not improve profitability based on the amounts of equity, assets, and levels of profits from sales. Include the proper assessment of outcomes as positive or negative trends when all four ratio outcomes are factored as a group.

Profitability Ratios

• Return on Equity (ROE)
• Return on Assets (ROA)
• Net Profit Margin
• Operating Profit Margin

Part 2

In this part of your assignment, you will compose an analytical study reporting your results from Part 1. The CEO of your company is forming a task force to review the financials and present a review for acquisition of ABC Company. Based on ABC's previous 3 years of financials, determine if this would be a good acquisition. You must form the task force to complete the task.

The CEO would like most of the departments to participate in the process. Using each department's area of expertise, what information would each of the following departments contribute to the final decision? Provide a minimum one-paragraph response for each department.

• Finance Department
• Sales Department
• Marketing Department
• Human Resources
• Legal Department