Financial Analysis: Group Project, Part 2
Total asset turnover indicates the efficiency with which the firm uses its assets to generate sales.
Total asset turnover = Sales ÷ Total assets
The debt ratio measures the proportion of total assets financed by the firm’s creditors.
Debt ratio = Total liabilities ÷ Total assets
Financial Analysis: Group Project, Part 2
Free Cash Flow: This is the cash a firm earns after taking into consideration cash outflows (payments) that support its operations and maintain its capital assets. It is the cash that remains after all expenses including capital investment are made. See the following site for additional information on how to calculate free cash flow:
https://corporatefinanceinstitute.com/resources/knowledge/valuation/fcf-formula-free-cash-flow/
Financial Analysis: Group Project, Part 2
The debt-to-equity ratio (same as Financial Leverage ratio) measures the relative proportion of total liabilities and common stock equity used to finance the firm’s total assets.
Debt to equity = Total liabilities ÷ Common stock equity
The times interest earned ratio measures the firm’s ability to make contractual interest payments; sometimes called the interest coverage ratio.
Times interest earned ratio = EBIT ÷ Interest The figure for earnings before interest and taxes (EBIT) is the same as that for operating profits shown in the income statement.
Financial Analysis: Group Project, Part 2
Gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods.
Financial Analysis: Group Project, Part 2
Return on Sales measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted.
Return on Sales = Earnings available for common stockholders ÷ Sales
Return on Sales may also be computed as follows: Net Income/Sales
Financial Analysis: Group Project, Part 2
The return on total assets measures the overall effectiveness of management in generating profits with its available assets.
Return on total assets (ROA) = Earnings available for common stockholders ÷ Total assets
Return on Total Assets may also be computed as follows: Net Income/Total Assets
The return on equity measures the return earned on common stockholders’ investment in the firm.
Return on Equity (ROE) = Earnings available for common stockholders ÷ Common stockholder’s equity
Return on Equity may also be computed as follows: Net Income/Common Stockholders’ equity
Financial Analysis: Group Project, Part 2
The DuPont system first brings together the net profit margin, which measures the firm’s profitability on sales, with its total asset turnover, which indicates how efficiently the firm has used its assets to generate sales.
ROA = Net profit margin Total asset turnover
Net Profit Margin = Net Income/Sales
Financial Analysis: Group Project, Part 2
The DuPont system first brings together the net profit margin, which measures the firm’s profitability on sales, with its total asset turnover, which indicates how efficiently the firm has used its assets to generate sales.
ROA = Net profit margin Total asset turnover
Financial Analysis: Group Project, Part 2
The modified DuPont Formula relates the firm’s return on total assets to its return on common equity. The latter is calculated by multiplying the return on total assets (ROA) by the financial leverage multiplier (FLM), which is the ratio of total assets to common stock equity:
ROE = ROA FLM
Financial Analysis: Group Project, Part 2
Your Paper Should Include:
Introduction: Provide a general introduction to your paper. (0.5-1 page)
Calculation of Ratios: In this section, provide complete calculation of each ratio. Show the formulas and numbers you used. You may use excel. If you use excel, please attach your excel worksheet. You will lose points if your paper does not have the required calculationsin good form. Your calculations should be for 2 years.
Financial Analysis: Group Project, Part 2
Your Paper Should Include:
Analysis: In this section, provide an analytical comments on the ratios. Ratios themselves do not tell us anything unless they are explained. Discuss the ratios in this section and comments on the trends of each ratio for the 2 years.
Financial Analysis: Group Project, Part 2
Your Paper Should Include:
Conclusion: In this section, provide an analytical summary of Group Project, Part 2. Suggest ways the company can improve the ratios that show problems.
Financial Analysis: Group Project, Part 2
Your Paper Should Include:
Reference: Provide a separate reference page. All work in your reference should be cited within the body of your work.
Financial Analysis: Group Project, Part 2
Key Points to Earning Good Grade on Your Group Project
Organize your work: You will lose points if your paper is not organized as outline in this PPT
Provide Cover Page to include the class information, professor, group members who participated, and date. Include only the group members who participated.
Organize your work: Label each section/problem clearly.
Use APA throughout. Include appropriate in-text citations and references as needed.
Avoid copy-and-paste. High Turnitin score (greater than 25%) will be investigated and may result to zero grade.
