Ratio Analysis and Financial Statements
Calculate the Ratios (Part 1)
Using the financial statements for a mystery company provided on the assignment spreadsheet below, calculate all of the ratios for all five years. When you use excel and link the equations in the first year, you can drag them across and excel will calculate all the other years for you. This is a great time saver! See the help video if you dont know how to do this. .
Ratio Analysis SpreadsheetPreview the document
Calculate Common-Size Financial Statements and Complete a Financial Statement Analysis (Part 2)
Common size financial statements will help you in your time-series analysis and will give you a better idea of what is going on in the company. Go to the Income Statement and the Balance Sheet tabs and create a common-size statement out to the side of the original ones. (I have included a blank format for you). Then complete a financial statement analysis listing a few points of interest. You should also mention some of your findings in your Summary (Part 4). (A financial statement analysis is basically just taking a look at the financial statements to get an overall picture of the company. For instance, by looking at the amount of revenues generated, you can get an idea about the size of a company and by looking at multiple years, you can learn if the revenues are growing or declining. Both are important bits of information about the company.)
Analyze and Explain the Ratios (Part 3)
On the same spreadsheet, complete an analysis for each ratio category similar to the one on page 97 of the text book . A ratio analysis includes a trend analysis, an industry comparison and a sentence summarizing your overall view of the company’s financial performance in that category. Please be thorough, this is an analysis.
Summary (Part 4)
This is where you summarize all of the information you have attained so far about the company. Using the information you have gained from the financial statement analysis, the common-sized financial statements, and the ratio analysis; state your impression of the overall financial condition of the company and your recommendations of what needs to be accomplished going forward. (I am NOT asking you whether or not you would invest in this company, Im asking if you were the manager of this company, what you would do.)
Use your critical thinking skills here. Back up your statements with data (facts). Thoroughly define the problems. Be aware of bias and fallacious reasoning (Don’t just tell me a bunch of things that might or might not be true, I’m looking for facts based on your observations of the firm’s financial statements and ratios). Consider and evaluate multiple alternatives and their consequences. Draw a well reasoned conclusion.