The purpose of this assignment is to evaluate the financial condition and performance of the firm you and your CLC group members have selected for analysis.

Refer to Tables A-1 through A-5 in Appendix II of the text for the operational definitions of and formulas for numerous common financial ratios, including profitability, liquidity, leverage, activity, and shareholders' return. Using these formulas, complete at least one ratio from each of the five categories, though you may apply as many of the ratios for which you can find the required information in the firm's financial reports. On your calculations page, specify for which formulas you are solving.

In an assessment of approximately 750 words, address the following:

  

1. Determine which of the ratios provide the most key insights into the firm's current level of performance. How can you assess whether the results of your calculations are positive or negative? Explain which of the ratios give you reason to be concerned with the organization's current strategy and why.
2. The Organizational and Operational Plans assignment references the possible benefits and risks of forming a strategic alliance. What would be the risks of forming a strategic alliance in terms of the firm's profitability ratios? Which of those five ratios is most likely to reveal immediate information for analysis of the alliance's effectiveness?
3. Considering today's financial climate, how likely is it that the organization could acquire the capital necessary to support an aggressive value-enhancement strategy? From where would that capital originate? Compared to current interest rates, what do you believe is a realistic interest rate the firm might incur? Which of the liquidity ratios will be impacted by the influx of capital, if borrowed?

Submit your calculations with your written response.

 

Table A-1 Profitability Ratios Ratio Formula What It Shows 1. Return on total assets Profits after taxes Total assets The net return on total investments of the firm or or Profits after taxes + Interest Total assets The return on both creditors' and shareholders'investments Profits after taxes Total stockholders' equity Profits after taxes - Preferred stock dividends Total stockholders' equity Par value of preferred stock stockholders Profits before taxes and before interest 2. Return on stockholders' equity (or return on net worth) How profitably the company is utilizing shareholders'funds 3. Return on common equity The net return to common 4. Operating profit margin (or return on sales) The firm's profitability from regular operations Sales The firm's net profit as a percentage of 5. Net profit margin (or net return on sales) Profits after taxes Sales total sales Table A-2 Liquidity Ratios Ratio Formula What It Shows 1. Current ratio Current assets Current liabilities The firm's ability to meet its current financial liabilities 2. Quick ratio (or acid-test ratio) Current assets Inventory Current liabilities The firm's ability to pay off short-term obligations without relying on sales of inventory 3. Inventory to net working capital Inventory Current assets - Current liabilities The extent to which the firms working capital is tied up in inventory Table A-3 Leverage Ratios Ratio Formula What It Shows 1. Debt-to-assets Total debt Total assets Total borrowed funds as a percentage of total assets Total debt Total shareholders equity 2. Debt-to-equity Borrowed funds versus the funds provided by shareholders Long-term debt Total shareholders' equity 3. Long-term debt-to-equity Leverage used by the firm 4. Times-interest-earned (or Profits before interest and taxes Total interest charges The firm's ability to meet all interest payments coverage ratio) Profits before taxes and interest + Lease obligations Total interest charges + Lease obligations 5. Fixed charge coverage The firm's ability to meet all fixed- charge obligations including lease payments Table A-1 Profitability Ratios Ratio Formula What It Shows 1. Return on total assets Profits after taxes Total assets The net return on total investments of the firm or or Profits after taxes + Interest Total assets The return on both creditors' and shareholders'investments Profits after taxes Total stockholders' equity Profits after taxes - Preferred stock dividends Total stockholders' equity Par value of preferred stock stockholders Profits before taxes and before interest 2. Return on stockholders' equity (or return on net worth) How profitably the company is utilizing shareholders'funds 3. Return on common equity The net return to common 4. Operating profit margin (or return on sales) The firm's profitability from regular operations Sales The firm's net profit as a percentage of 5. Net profit margin (or net return on sales) Profits after taxes Sales total sales Table A-2 Liquidity Ratios Ratio Formula What It Shows 1. Current ratio Current assets Current liabilities The firm's ability to meet its current financial liabilities 2. Quick ratio (or acid-test ratio) Current assets Inventory Current liabilities The firm's ability to pay off short-term obligations without relying on sales of inventory 3. Inventory to net working capital Inventory Current assets - Current liabilities The extent to which the firms working capital is tied up in inventory Table A-3 Leverage Ratios Ratio Formula What It Shows 1. Debt-to-assets Total debt Total assets Total borrowed funds as a percentage of total assets Total debt Total shareholders equity 2. Debt-to-equity Borrowed funds versus the funds provided by shareholders Long-term debt Total shareholders' equity 3. Long-term debt-to-equity Leverage used by the firm 4. Times-interest-earned (or Profits before interest and taxes Total interest charges The firm's ability to meet all interest payments coverage ratio) Profits before taxes and interest + Lease obligations Total interest charges + Lease obligations 5. Fixed charge coverage The firm's ability to meet all fixed- charge obligations including lease payments