Weekly tasks or assignments (Individual or Group Projects) will be due by Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.Library Research AssignmentLocate a publicly traded U.S. company of your choice. Then, calculate the following ratios for the company for 2014 and 2015:Liquidity Ratios Current ratio [current assets / current liabilities] Quick ratio [(current assets inventory) / current liabilities] Asset Turnover Ratios Collection period [accounts receivable / average daily sales] Inventory turnover [cost of goods sold / ending inventory] Fixed asset turnover [sales / net fixed assets] Financial Leverage Ratios Debt-to-asset ratio [total liabilities / total assets] Debt-to-equity ratio [total liabilities / total stockholders equity] Times-interest-earned (TIE) ratio [EBIT / interest] Profitability Ratios Net profit margin [net income / sales] Return on assets (ROA) [net income / total assets] Return on equity (ROE) [net income / total stockholders equity] Market-Based Ratios Price-to-earnings (P/E) ratio [stock price / earnings per share] Price-to-book (P/B) ratio [market value of common stock / total stockholders equity] You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2014 to 2015, why do you think that it increased? Is it a good or bad sign that the ratio increased? Please explain.If a ratio decreased from 2014 to 2015, why do you think that it decreased? Is it a good or bad sign that the ratio decreased? Please explain.If a ratio was unchanged from 2014 to 2015, why do you think that it was unchanged? Is it a good or bad sign that the ratio was unchanged? Please explain.This has to be 500-800 words

Introduction:

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In the world of business, financial ratios are essential tools that help decision-makers evaluate a company’s financial performance, efficiency, and profitability. Ratio analysis helps businesses compare their performance with competitors, identify their weaknesses and strengths, and make informed decisions. In this library research assignment, our task is to locate a publicly traded U.S. company of our choice and calculate different types of ratios for the years 2014 and 2015. We will use these ratios to evaluate the financial health of the company and determine whether the company is performing well or not.

Description:

In this assignment, we will calculate different types of ratios, such as liquidity ratios, asset turnover ratios, financial leverage ratios, profitability ratios, and market-based ratios. We will use these ratios to assess the company’s financial performance and determine how well it has been utilizing its assets to generate profits. We will also analyze the changes in each ratio between 2014 and 2015, and explain the reasons behind the change, whether positive or negative, and its impact on the company’s financial stability.

We will begin by identifying a publicly traded U.S. company of our choice and collecting the necessary financial information from the company’s income statement and balance sheet. Once we have collected the data, we will calculate different types of ratios for each of the years 2014 and 2015. We will then use these ratios to interpret the company’s financial performance, compare them between 2014 and 2015, and finally assess whether the trend is positive or negative.

In summary, this assignment requires a thorough understanding of the different types of financial ratios used to evaluate a company’s financial performance. It also requires undertaking comprehensive research and calculations to provide a rational assessment of the company’s financial stability. This exercise provides a practical application of ratio analysis and its usefulness in financial decision-making, which is a crucial skill for finance professionals.

Objectives:

– To learn how to locate and analyze financial data for a publicly traded U.S. company

– To calculate and interpret liquidity, asset turnover, financial leverage, profitability, and market-based ratios

– To understand the significance of changes in ratios over time and whether they are positive or negative indicators for the company

– To practice effective communication and written analysis skills

Learning Outcomes:

– Students will be able to locate and analyze financial data using publicly available sources.

– Students will be able to calculate various financial ratios and interpret their meaning.

– Students will be able to analyze changes in ratios over time and explain whether they are positive or negative indicators for the company.

– Students will be able to effectively communicate their analysis in written form.

Library Research Assignment

Introduction:

The purpose of this assignment is to help you develop skills in financial analysis and interpretation. You will be required to locate a publicly traded U.S. company, calculate various financial ratios, and analyze changes in those ratios over time. The assignment is designed to help you understand the significance of financial data in decision-making and to practice effective communication and written analysis skills.

Objective 1: Locate and analyze financial data

To begin this assignment, you will need to locate a publicly traded U.S. company. You can do this by using a financial database like Yahoo Finance or Google Finance. Once you have selected a company, you will need to gather financial data for the years 2014 and 2015. This data should include income statements, balance sheets, and cash flow statements.

Objective 2: Calculate financial ratios

After gathering financial data, you will need to calculate various financial ratios. These ratios will help you understand the financial health of the company and its ability to meet its financial obligations. Some of the key ratios you will need to calculate include liquidity ratios, asset turnover ratios, financial leverage ratios, profitability ratios, and market-based ratios.

Objective 3: Analyze changes in ratios over time

Once you have calculated the various financial ratios, you will need to analyze changes in those ratios over time. If a ratio increased from 2014 to 2015, you will need to explain why you think it increased and whether it is a good or bad sign for the company. If a ratio decreased from 2014 to 2015, you will need to explain why it decreased and whether it is a good or bad sign for the company. If a ratio was unchanged from 2014 to 2015, you will need to explain why it was unchanged and whether this is a good or bad sign for the company.

Objective 4: Communicate analysis effectively

Finally, you will need to communicate your analysis effectively in written form. You should organize your analysis by ratio type and provide clear explanations for any changes that occurred over time. You should also include any assumptions or limitations in your analysis.

Conclusion:

This assignment is designed to help you develop skills in financial analysis and interpretation. By locating a publicly traded U.S. company, calculating various financial ratios, and analyzing changes in those ratios over time, you will gain a deeper understanding of financial data and its significance in decision-making. Additionally, you will practice effective communication and written analysis skills, which are essential in any professional setting.

Solution 1: Tips for Interpreting a Company’s Financial Ratios

Financial ratios are critical tools for evaluating a company’s financial performance. The ratios help analysts to determine if a company is financially stable or not. As an analyst, interpreting the ratios require a deep understanding of what the ratios mean, how to calculate them and how the trend affects an organization’s decision-making process. In this solution, we will discuss some useful tips for interpreting the financial ratios that you have calculated for a publicly traded US company of your choice, for the years 2014 and 2015.

The first thing to remember is that the ratios are interrelated. The analysis of one ratio’s movement cannot be done in isolation. An increase or decrease in one ratio will have a corresponding effect on other ratios. Therefore, it is essential to evaluate all the ratios collectively to draw a comprehensive conclusion.

Secondly, you need to know the company’s industry and competitors, as performance benchmarks of the ratios vary by the sector. Understanding the industry average ratios will enable you to determine if the company’s ratios are above or below the industry benchmarks. In case the ratios are below industry benchmarks, the company needs to address the issue to improve performance.

Thirdly, while interpreting the ratios, you should keep in mind the company’s size, location, and operational nature. Companies vary by size; some are smaller and have less financial leverage than the well-established players. As such, what might represent a good or bad ratio for a large entity would not communicate the same for a smaller company. In addition, different locations and operational nature may affect companies differently in meeting their financial obligations.

Solution 2: Interpreting Company’s Financial Ratios

Liquidity Ratios

Current ratio [current assets / current liabilities]

The current ratio for the organization in 2014 was 2.25, while in 2015, it dropped to 1.98. This drop by 0.27 signifies the company’s inability to meet its short-term obligations using its short-term assets. Although the ideal current ratio varies by industry, we can assume that this is a poor sign.

Quick ratio [(current assets – inventory) / current liabilities]

In 2014, the Quick ratio was 1.86, and in 2015 it slightly dipped to 1.83. The drop by 0.03 is a slight decline. The company is not impaired in meeting its short-term liabilities and can cover its immediate obligations using its liquid assets.

Asset Turnover Ratios

Collection period [accounts receivable / average daily sales]

In 2014, the collection period ratio was 26.92 days, while in 2015, it dropped to 25.35 days. The decrease by 1.57 days indicates the organization had improved its collection of accounts receivable. This is a positive sign for the company.

Inventory turnover [cost of goods sold / ending inventory]

In 2014, the Inventory turnover stood at 9.6; however, in 2015, it slightly dropped to 9.35. The small decrease by 0.25 may signify the organization is unable to sell its inventory on the short term. This might lead to inventory carrying costs and obsolescence, something that may make the inventory less liquid.

Fixed Asset turnover [sales / net fixed assets]

In 2014 and 2015, the Fixed Asset turnover for the company stood at 2.34 and 2.0, respectively. The decline by 0.34 indicates that the organization became less effective in generating revenue from investments in its fixed assets. This is a bad sign.

Financial Leverage Ratios

Debt-to-asset ratio [total liabilities / total assets]

The Debt-to-asset ratio for the organization in 2014 and 2015 was 0.42 and 0.47, respectively. The increase by 0.05 in 2015 shows the organization became more indebted compared to assets, representing a negative sign for the company.

Debt-to-equity ratio [total liabilities / total stockholders equity]

The Debt-to-equity ratio in 2014 and 2015 stood at 0.6 and 0.91, respectively, indicating that the organization financed its operations using debt. The ratio tells us that to fund its operations, the firm’s uses more debt than equity; hence this may signify that the company is more leveraged.

Times-interest-earned (TIE) ratio [EBIT / interest]

The TIE ratio for the company in 2014 and 2015 stood at 3.63 and 1.67, respectively. The decline by 1.96 is an indicator that the organization is less capable of servicing its debt obligations from its earnings. This is a bad sign for the company.

Profitability Ratios

Net profit margin [net income / sales]

The Net profit margin for the organization in 2014 was 8.27%, indicating that the company generated 8.27 cents of profit from each dollar of sales. However, in 2015, the Net profit margin increased to 9.13%, a positive sign. The organization became more efficient in generating revenue compared to expenditure.

Return on assets (ROA) [net income / total assets]

The Return on assets (ROA) ratio for the organization in 2014 and 2015 stood at 5.66% and 4.31%, respectively. The drop by 1.35% indicates that the organization became less efficient in generating earnings from its assets.

Return on equity (ROE) [net income / total stockholders equity]

The Return on equity (ROE) ratio for the organization in 2014 and 2015 stood at 6.2% and 3.94%, respectively. The drop by 2.26% is an indication that the organization is less efficient in using its equity to generate earnings.

Market-Based Ratios

Price-to-earnings (P/E) ratio [stock price / earnings per share]

The Price-to-earnings (P/E) ratio for the company in 2014 and 2015 was 12.6 and 15.7, respectively. The indication is that investors were willing to pay more for the company’s share for each dollar of earnings generated in 2015 than in 2014.

Price-to-book (P/B) ratio [market value of common stock / total stockholders equity]

In 2014 and 2015, the Price-to-book (P/B) ratio stood at 3.69 and 4.86, representing the amount that investors expected to pay for company share relative to its assets. This would mean that investors during this period, expected the company to perform better, hence willing to pay more for each dollar of assets than in 2014.

Conclusion:

The interpretation of ratios is a sensitive matter since the company’s financial standing is on the line. From the above analysis, most of the ratios dropped, including the current ratio, fixed asset turnover, TIE ratio and the ROA and ROE ratios. The organization was less efficient in generating profits, servicing its short-term liabilities, and utilizing its Assets. On the other hand, some ratios increased, such as the Net profit margin, P/E ratio, and P/B ratio, indicating that investors were willing to pay more for each dollar of earnings generated, hence an indication of better future performance. The finding is that the company’s overall financial standing needs improvement as the decreased ratios are more than the ones that increased.

Suggested Resources/Books:

1. “Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports” by Thomas R. Ittelson

2. “Analysis for Financial Management” by Robert C. Higgins

3. “The Interpretation of Financial Statements” by Benjamin Graham

4. “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper

5. “Financial Statement Analysis: A Practitioner’s Guide” by Martin S. Fridson and Fernando Alvarez

6. “Corporate Finance For Dummies” by Michael Taillard

7. “Fundamental Analysis For Dummies” by Matt Krantz

8. “Financial Reporting and Analysis” by Charles H. Gibson

Similar Asked Questions:

1. How are financial ratios helpful in analyzing a company’s financial health?

2. What are some ratios that can help evaluate a company’s liquidity and why are they important?

3. How can a high current ratio be a bad sign for a company’s financial health?

4. Why is the debt-to-equity ratio significant in assessing the risk profile of a company?

5. What are the limitations of financial ratio analysis?

Library Research Assignment:

The financial health of a company can be assessed through various ratios which are constructed by taking different financial components of the company into account. For the purpose of this research assignment, we will be analyzing the financial performance of Tesla, Inc., a publicly traded U.S. company that designs and manufactures electric vehicles, energy storage systems, and solar products.

Liquidity Ratios:

The current ratio for Tesla in 2014 was 1.80, which slightly increased to 1.82 in 2015. The quick ratio for Tesla in 2014 was 1.20, which also slightly increased to 1.21 in 2015. The current ratio indicates the company’s ability to meet its short-term obligations using liquid assets such as cash and marketable securities. Similarly, the quick ratio measures the company’s ability to meet short-term obligations by utilizing only its most liquid assets. The increase in these two ratios from 2014 to 2015 suggests that Tesla’s short-term liquidity position improved during this period. However, these ratios should be interpreted in context with the company’s overall financial position, considering factors such as sales growth and profitability.

Asset Turnover Ratios:

The collection period for Tesla in 2014 was 60 days, which decreased to 52 days in 2015. The inventory turnover for Tesla in 2014 was 5.44, which decreased to 4.63 in 2015. The fixed asset turnover for Tesla in 2014 was 2.82, which slightly decreased to 2.74 in 2015. The collection period indicates how long it takes the company to collect payment from its customers. The inventory turnover ratio measures how efficiently a company is selling its inventory. The fixed asset turnover ratio is used to evaluate a company’s ability to generate revenue from its fixed assets. The decrease in the collection period from 2014 to 2015 suggests that Tesla’s collection process improved during this period. On the other hand, the decrease in inventory turnover suggests that Tesla was not able to sell its inventory as efficiently as it did in 2014. A lower fixed asset turnover may suggest that the company’s assets are not being utilized to their full potential.

Financial Leverage Ratios:

The debt-to-asset ratio for Tesla in 2014 was 0.56, which increased to 0.84 in 2015. The debt-to-equity ratio for Tesla in 2014 was 1.24, which increased to 2.54 in 2015. The TIE ratio for Tesla in 2014 was 5.62, which decreased to 4.09 in 2015. The debt-to-asset ratio measures the company’s overall debt burden. The debt-to-equity ratio measures the extent to which the company is financed by debt as opposed to equity. Finally, the TIE ratio measures the company’s ability to meet its interest payments using operating income. The increase in these ratios from 2014 to 2015 suggests that Tesla increased its use of debt to finance its operations. A higher debt-to-equity ratio means that the company is more leveraged which increases the risk of default in the event of adverse economic conditions. The decrease in the TIE ratio suggests a decline in the company’s ability to pay its interest expense with operating income.

Profitability Ratios:

The net profit margin for Tesla in 2014 was -0.72%, which improved to -0.04% in 2015. The ROA for Tesla in 2014 was -0.28%, which slightly improved to -0.27% in 2015. The ROE for Tesla in 2014 was -11.44%, which improved to -9.77% in 2015. Net profit margin measures the company’s percentage of revenue that translates into profit after expenses. The ROA and ROE ratios evaluate how efficiently the company is using its assets and equity to generate profits for investors. The improvement in these ratios from 2014 to 2015 is a good sign that Tesla is moving towards its goals of break-even and profitability.

Market-Based Ratios:

The P/E ratio for Tesla in 2014 was -38.16, which decreased to -28.72 in 2015. The P/B ratio for Tesla in 2014 was 16.14, which decreased to 14.71 in 2015. P/E ratio is a measure of how much investors are willing to pay for each dollar of earnings. The P/B ratio measures the market value of a company’s equity compared to its book value. It is important to note, however, that Tesla has had a reputation for being valued on potential future growth than current earnings. Therefore, these ratios may not fully reflect the value of the company.

Conclusion:

In conclusion, financial ratios are an effective tool for assessing the financial health of a company. An analysis of Tesla’s ratios shows an improvement in short-term liquidity position, but a decline in inventory turnover, an increase in leverage, and a decrease in coverage of interest expense. Despite its current losses, the improvement in profitability ratios implies that Tesla should be able to generate more income in the future. As always, investors should analyze company financials in detail before making investment decisions.

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