Today’s webinar
• Recap of last week: any question?
• Module 2: Financial analysis
• Exploring some activities
Topic 2: Financial Analysis
Financial Analysis
Income
Statement
Balance
Sheet
Cash Flow
Statement
Health check up
for organizations
Profits and
Losses
Assets and
Liabilities
Changes in
cash balances
Market value
Profitability
Efficiency
Capital Structure
Liquidity
Ratio
analysis
Trend
analysis
Peer group
comparison
Activity 2.8 (Activity Solutions pg. 7)
Activity 2.8 (Activity Solutions pg. 7)
a) Calculate the following financial ratios for 2014 and 2015:
Activity 2.8 (Activity Solutions pg. 7)
b) Evaluate the firm’s financial position at the end of 2014 in terms of its liquidity, capital
structure, asset management efficiency and profitability.
Activity 2.8 (Activity Solutions pg. 7)
c) At the end of 2015, the firm has 5000 ordinary shares outstanding, selling for $15 each.
What were the firm’s (i) earnings per share, (ii) price-earnings ratio, and (iii) market-tobook
ratio?
Activity 2.8 (Activity Solutions pg. 7)
d) What observations can you make about the financial condition and performance of the
firm from your answers to parts (a) to (c)?
In terms of the financial ratios used to evaluate Carver’s performance, the firm is doing
as well or better than its industry peers in most areas.
However, it current and quick ratios are relatively low, indicating a possible liquidity
issue.
Despite the very high level of profitability, the firm’s share price does not seem
particularly high. A P/E ratio of 3.21 is very low – the long-term trend for the Australian
market is 15. The market-to-book value is also very low. A successful firm, whereby
management has created value for shareholders and increased the value of shares over
and above what the shareholders paid for them, would result in a market-to-book value
considerably higher than 1.
Thank You!
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