Discussion

Financial analysts must evaluate the performance of the company and compare that performance over time. One way to evaluate the financial performance of a company is to calculate financial ratios. Ratios can be used to assess a company’s profitability, liquidity, efficiency, and financial risk (leverage). Changes in these ratios over time can alert a financial analyst to poor management or strong shareholder returns. For this discussion, you will calculate some common financial ratios for your chosen publicly traded company.

Prepare:

Prior to beginning work on this discussion forum,

• Read Chapter 11 of the Essentials of finance.
  • Specifically review the “A Closer Look” feature box in Section 11.3.
• Complete the Week 2 – Learning Activity.
• Make sure you have completed the Week 1 – Assignment 1.

Calculate:

• Calculate two ratios for your chosen company, according to your last name and the list below. Using Appendix A from Week 1, calculate the ratios for your chosen company for the two most recent years available in the financial statements.
  • Last names A through C: Return on assets (ROA) and return on equity (ROE).
  • Last names D through F: Long-term debt to equity ratio and interest coverage ratio.
  • Last names G through I: Gross profit margin and net profit margin.
  • Last names J through L: Current ratio and quick ratio.
  • Last names M through O: Inventory turnover and receivables turnover.
  • Last names P through R: Days sales outstanding and days inventory outstanding.
  • Last names S through U: Book value per share and price-to-book.
  • Last names V through Z: Earnings per share and price-earnings (P/E) ratio.

Need help with your calculations? Check out the videos included in this resource: Week 2 Discussion Help (Links to an external site.).

Write:

In your initial discussion forum post,

• Create a table within your discussion post that includes the following information:
  • the financial data used to calculate each ratio in the 2 years for your chosen company
  • the last 2 years (clearly labeled)
  • the calculations and the concluded ratio
    • Need help making a table? Review the How So I Insert a Table Using the New Rich Content Editor as a Student? (Links to an external site.)
  • Explain what your two ratios measure.
  • Attach your Appendix A (that you completed in Week 1) to your discussion post so that other students can review your data and calculations.

Guided Response: Review several of your colleagues’ posts, and reply to at least two of your peers by 11:59 p.m. on Day 7 of the week. You must respond to two classmates who have calculated different ratios than you. In your written responses to your classmates, address the following:

• Using the included Appendix A provided by your classmate, confirm the calculated ratios or explain a correction to the calculated ratios in the initial post.
• Provide the calculations for one additional ratio for their company for the 2 most recent years. Choose the ratio from the list of ratios for this discussion.
  • Identify which ratio you are calculating, and provide the financial data used for the ratio as well the concluded ratio.
• State whether or not you believe this additional ratio shows another financial strength for the company or if it shows a weakness for the company.