In this fast-paced world of today, the playing field has become highly competitive especially for companies catering to the same market. As a business or finance student, your goal is to gain the relevant skills necessary to help your future company (that is if you will become an entrepreneur) or the company you will work for, maintain relevancy and profit in the market arena. And that is why it is important to learn how to do ratio analysis with our company ratio analysis homework help.
What Is a Company Ratio Analysis?
In simple terms, a ratio analysis of financial statements is a quantitative method of finding information that is contained in a company’s financial records and using this information to determine the value of a company. Information is usually derived from sources such as cash flow statement, balance sheets, and income statements. This information is further used to determine the solvency, efficiency, profitability, and liquidity of a given company. Ratios are also used to compare different companies that are operating in the same market to see how they are faring on.
Goals of Company Ratio Analysis
As you are aware by now, for a company to run efficiently, it needs financial backing from its investors. But how do these investors determine that a given company is worth pumping their capital in? They do this by taking a look at a company’s financial statement ratio analysis report. From these ratios, it is clear that a company will benefit in the following ways:
- Helps the company to bring more investments – It’s human nature to always play it safe. Even if your company is owned by the richest of richest, a matter of pride comes to play in not wanting to see your company slip and fall. And that is why investors and creditors are deemed an important part of a company. So how do these investors pump their money into a company that they see is necessary to invest in? They first check the report on financial ratio analysis of the company in question before investing in it. If the financial ratios are healthy (that is, they are above the stipulated industry benchmark), then investors will be more willing to direct their capital there.
- Beneficial for calculating the debt-to-equity ratio – The debt to equity ratio is very important for the growth and profitability of a business. In fact, when this ratio has been determined, then companies can be able to compare both their debt to equity and accurately assess their financial status. For example, if the ratio is low, then the company can confidently borrow money presently and in future situations.
- Determine the return on investment – For investors currently sitting on the board, the return of investment lets them know how much profit and how much money they are making with the company. Having a great ROI means that your investors will be satisfied and more open to directing capital for business expansion.
Types of Financial Ratios Handled by Our Company Ratio Analysis Homework Help
There are different types of financial ratios but we will have a look at the following ones for further clarity. They will also help especially if you are doing a project on ratio analysis of a company.
Liquidity
A liquidity ratio is the measure of a company to pay its debt, especially in an emergency situation. This is done by measuring the current liabilities and comparing them with the liquid assets of the company. Liquidity ratios are determined by taking a look at the following metrics. These are the current ratio, operating cash flow ratio, and the quick ratio. The formula is given by:
(cash equivalents) + marketable securities+account receivables) / current liabilities
Activity
An activity ratio is the measure of a company to be able to convert its varying accounts present in the balance sheet to sales or cash. When calculating the activity ratio, we analyze the efficiency of a firm based on how its assets are being utilized, the items present on the balance sheet, and finally, the leverage. Let’s have a look at one formula of a commonly used activity ratio which is the accounts receivable turnover ratio. It is given by:
Net credit sales / Average accounts receivables
Leverage
For a company to run efficiently, it needs both the owner’s equity as well as the debt to successfully finance all its operations. That being said, a leverage ratio takes a look at how much capital is being brought in from a given debt and determines how able a company is to be meet all its required financial obligations. One good example of the leverage ratio is the debt ratio. It is given by:
Total Liabilities / Current Assets
Performance
As the name dictates, performance ratios measure the overall performance of a given company in terms of management, different departments, over a given period. Let’s have a look at one of the formulas of performance ratio known as Gross Margin. It is given by:
Gross Margin = (Gross Profit / Net Sales) * 100
Valuation
There are many types of investment-valuation ratios, but the most important one is the P/E ratio that compares a company’s current price of its shares to the total earnings that it generates.
Find out how to find debt to equity ratio and what is the purpose of using this approach in finances!
Some Examples of Our Company Ratio Analysis Homework Help
So now that we know the meaning of financial ratio analysis of company, let us have a look at two examples using these formulas.
Example 1 (Debt Ratio)
Suppose your bike business has the given financial statement
Total Assets= $200,000
Total liabilities= $50,000
Debt ratio= $50,000/$200,000
=0.25
The debt ratio will be given by 0.25
Example 2 (Gross Margin Ratio)
Suppose you are given the following financial information from a company’s balance sheet
Inventory expenditure: $200,000
Inventory sell: $500,000
Refunded sales $60,000
Then, the gross margin ratio will be calculated as follows:
($440,000- $200,000)/ ($500,000-$60,000) = 0.54
That being said, you can have a look at more examples of the given ratios once you get in touch with us. We also provide essential assistance on a financial ratio analysis project to help you understand the given ratios much better. Furthermore, essential writing guidance is given when it comes to your financial ratio analysis dissertation.
So get in touch with us for the essential company ratio analysis homework help and we will immediately assist you!
