i. Compute the following ratios on your selected company. You must provide the calculations of these ratios in an Excel file. You must show the numbers for your ratios and the answer. Organization of the information must be neat, tidy, make sense, and easy to read. You may summarize the data in a separate tab or file, but must include the details on the calculations in the Excel file. If you have to make any assumptions on the calculations, make a note of what you did or considered.
- Working capital
- Current ratio
- Acid-test or quick ratio
- Operating cash flows to current liabilities
- Free cash flows
- Accounts receivable turnover
- Gross profit margin
- Profit margin
- Inventory turnover—skip this ratio if your company does not have inventory; include in your calculations that your company does not have inventory so ratio is N/A (not applicable).
- Debt-to-equity ratio
- Times interest earned ratio
- Return on assets
- Return on equity
- Earnings per share (basic and diluted)—you can get this from the company’s Income Statement or Statement of Operations
- Price-earnings ratio—use stock market price for date of financial statements, if you can find it; if you can’t find it, then use the current market price.
ii. Calculate any six of the above ratios for your company for the previous two years. (You should have a total of three year’s of ratio calculations.)
iii. Comment on your findings from i. and ii. in no longer than one page, double-spaced. Assume the reader is knowledgeable about the ratios and what they mean (i.e., do not explain the equation for the current ratio and what it means—we all know that now. Points will be deducted if you explain the ratios.) Include in your report the significant differences and what you think these differences mean.
iv. Answer the following questions by using the Notes to the Financial Statements:
a. What method/s of depreciation does your company use?
b. If your company sells a product, what method of inventory does it use? N/A if the company doesn’t sell a product.
c. What is the company’s policy regarding recognition of revenue? Copying and pasting the policy from the report is fine. (No need to copy multiple paragraphs and charts.)*
d. How are foreign currency translations handled? *
e. Did the company disclose any contingencies? If so, what type? *