Expert answer:Ratio Analysis
Solved by verified expert:OVERVIEW: In 3–6 pages, complete a ratio analysis using a provided balance sheet and income statement, specify how you would analyze a potential investment, and describe how you would forecast a company’s potential success. An investment analysis has two fundamental components: 1) A financial analysis, such as reviewing current financial ratios within the company, and 2) a non-financial analysis, which is reviewing a company’s strategic vision, employee satisfaction, et cetera. The first two parts of your assessment provide an opportunity for you to demonstrate both of these types of analyses. The goal of forecasting the performance of a company is to estimate the financial performance of a company over a selected period of years. When forecasting a company’s performance, similar to an investment analysis, you look at both financial and non-financial factors. This is the focus of the last part of your assessment. RESOURCES: Brigham, E. F., & Houston, J. F. (2013). Fundamentals of financial management (13th ed.). Mason, OH: South-Western Cengage Learning.de Rezende, F. C. (2011). The structure and the evolution of the U.S. financial system, 1945–1986. International Journal of Political Economy, 40(2), 21–44. Hall, R. E. (2010). Why does the economy fall to pieces after a financial crisis? Journal of Economic Perspectives, 24(4), 3–20.Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: Amacom. Fight, A. (2005). Cash flow forecasting. Jordan Hill, GBR: Butterworth-Heinemann. Downes, J., & Goodman, J. E. (2014). Dictionary of finance and investment terms (9th ed.). Hauppague, NY: Barron’s. INSTRUCTIONS: Combine the following three parts into one document. Part 1. Ratio Analysis (1–2 pages) Using the XYZ Balance Sheet and Income Statement provided and the table provided below, complete the following for XYZ Inc.: Calculate the indicated ratios for XYZ.Construct the DuPont equation for both XYZ and the industry.Use your analysis to outline XYZ’s strengths and weaknesses.Say XYZ had doubled its sales as well as its inventories and common equity during 2013. Do you think this would this affect the validity of your ratio analysis? No calculations are necessary. Ratio XYZ Inc. Industry Average Current 2.0x Quick 1.3x Days sales outstanding 35 days Inventory turnover 6.7x Total assets turnover 3.0x Profit margin 1.2% ROA 3.6% ROE 9.0% Part 2. Investment Analysis (1–2 pages) For this part of the assessment, imagine that you are looking into investing in a manufacturing company, such as a car company or a steel company. Your goal is to create a plan for determining the potential strength of an investment in the company (investment analysis) and determining how the company might perform over a selected period of years (forecast). After considering a potential investment in this manufacturing company, address the following: What are some of the qualitative factors that must be considered when selecting a company in which to invest?What financial ratios would you examine, and why?What non-financial factors would you examine, and why? Use research from at least two references to support your ideas. Part 3. Forecast (1–2 pages) Using the same hypothetical manufacturing company described above, address the following questions related to forecasting the performance of the company: How would you forecast revenue, profitability, and asset management, such as inventory control and accounts receivable, for a hypothetical manufacturing company?What ratios would you analyze?What techniques would you use? Why?What non-financial factors would be important in your analysis? Use research from at least two references to support your ideas. Additional Requirements Length: Your document should include 3–6 typed, double-spaced pages to cover all of the parts of the assessment. In addition, include a title page and references page.Written communication: Written communication should be free of errors that detract from the overall message.Style and Formatting: Apply APA style and formatting to cite your references.Resources: You must use at least four references, at least two references supporting Part 2 and two references supporting Part 3.Font and font size: Times New Roman, 12 point.
investment_analysis_and_forecasting_scoring_guide.pdf
xyz_balance_sheet_and_income_statement.doc
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10/19/2017
Investment Analysis and Forecasting Scoring Guide
Investment Analysis and Forecasting Scoring Guide
CRITERIA
NON-PERFORMANCE
BASIC
PROFICIENT
DISTINGUISHED
Construct a ratio analysis
for a company.
Does not describe a ratio
analysis for a company.
Describes a ratio analysis for
a company.
Constructs a ratio analysis
for a company.
Constructs a ratio analysis for a
company and provides an
analysis of this construction.
Articulate qualitative factors Does not articulate qualitative
to consider when selecting factors to consider when
an investment.
selecting an investment.
Names qualitative factors to
consider when selecting an
investment.
Articulates qualitative
factors to consider when
selecting an investment.
Analyzes qualitative factors to
consider when selecting an
investment.
Determine financial ratios to Does not determine financial
consider when selecting an ratios to consider when
investment.
selecting an investment.
Identifies financial ratios but
does not relate them to
selecting an investment.
Determines financial ratios
to consider when selecting
an investment.
Analyzes financial ratios to
consider when selecting an
investment.
Determines non-financial
factors to consider when
selecting an investment.
Analyzes non-financial factors to
consider when selecting an
investment.
Determine non-financial
factors to consider when
selecting an investment.
Does not determine nonIdentifies non-financial factors
financial factors to consider
but does not relate them to
when selecting an investment. selecting an investment.
Describe how to forecast
revenue, profitability, and
asset management.
Does not describe how to
forecast revenue, profitability,
and asset management.
Lists how to forecast revenue, Describes how to forecast
profitability, and asset
revenue, profitability, and
management.
asset management.
Demonstrates how to forecast
revenue, profitability, and asset
management using examples.
Evaluate techniques for
forecasting financial
statements.
Does not compare techniques
for forecasting financial
statements.
Compares techniques for
forecasting financial
statements.
Evaluates techniques for
forecasting financial
statements.
Evaluates techniques for
forecasting financial statements
using a comparison of techniques.
Choose ratios to include in
the forecasting analysis.
Does not choose ratios to
include in the forecasting
analysis.
Discusses ratios to include in
a forecasting analysis.
Chooses ratios to include
in the forecasting analysis.
Evaluates ratios to include in the
forecasting analysis.
Choose non-financial
factors to include in the
forecasting analysis.
Does not choose non-financial Discusses non-financial
factors to include in the
factors to include in the
forecasting analysis.
forecasting analysis.
Chooses non-financial
factors to include in the
forecasting analysis.
Evaluates non-financial factors to
include in the forecasting analysis.
https://courserooma.capella.edu/bbcswebdav/institution/BUS-FP/BUS-FP4070/150700/Scoring_Guides/u01a1_scoring_guide.html
1/1
Assessment 1, Problem 1.
XYZ Inc.: Balance Sheet as of December 31, 2013 (in thousands)
Cash
Receivables
Inventories
Total current assets
$75,000
300,000
125,000
500,000
Net fixed assets
Total assets
500,000
$1,000,000
Accounts Payable
Notes Payable
Other current liabilities
Total Current Liabilities
Long-term debt
Common equity
Total liabilities and equity
$150,000
90,000
110,000
$350,000
250,000
400,000
$1,000,000
XYZ Inc.: Income Statement for Year Ended December 31, 2012 (in thousands)
Sales
Cost of goods sold
$1,607,500
Materials
Labor
Heat, light, and power
Indirect labor
Depreciation
Gross Profit
Selling expenses
General and administrative expenses
Earning before interest and taxes (EBIT)
Interest expense
Earnings before taxes (EBT)
Federal and state income taxes (40%)
Net income
$717,000
453,000
68,000
113,000
41,500
1,392,500
$215,000
115,000
30,000
$70,000
24,500
$45,500
18,200
$27,300
1
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