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Analysis Of Financial Statements Simulation

979 words - 4 pages

Analysis of Financial PAGE \* MERGEFORMAT 1
Running head: ANALYSIS OF FINANCIAL STATEMENTS SIMULATIONAnalysis of Financial Statements SimulationUniversity of PhoenixAnalysis of Financial Statements SimulationThis paper will answer two questions concerning the Analysis of Financial Statements Simulation. The first answers how the manager of Panorama should decide the relative importance of the five categories of financial ratios when assessing candidates for the joint venture and the second is what questions should be asked when deciding how to weight financial ratios when evaluating the financial health of an entity.The relative importance of the five categories of financial ratiosThe simulation presents itself with Panorama Inc., America's second largest manufacturer of computers and peripherals. Since the company's inception in 1979, Panorama's key differentiator is product innovation, the latest being the PanBox - a set-top box that enables a television set to become a user interface to the Internet and receive digital broadcasts. Panorama has used their product innovation to set them apart from their competitors and is seeking an alliance with a television manufacturing and marketing partner. Panorama's short-term goal is to sell PanBox along with televisions and the long-term goal is to make PanBox the focus of convergence. In an attempt to meet these goals, Panorama's CFO, Simon Finkel has narrowed down the list to two television companies; Lambda TV sand Coral, (Online Simulation, 2009).For this simulation, Panorama is using two financial ratio analysis suites; Stuart Mason and Wagner. The suite that is better suited for evaluating the financials of Lambda TV and Coral must be evaluated. Of the two, Panorama choosing the Wagner suite of ratios to conduct an analysis of five key financial measures because it places a balanced emphasis on the five key financial measures, consisting of sales growth, profitability, turnover, liquidity and capital structure. In a joint venture, sales growth and profitability are crucial factors which determine a company's position in the marketplace, (Online Simulation, 2009).The sales growth would indicate the staying power and long-term sustainability of the alliance partner. The profitability ratios indicates a company's return on its investments, determining how profits are divided between debt holders and shareholders. Turnover is based on inventory and receivables and liquidity evaluations are on the current ratio alone, to focus on the company's ability to repay its debts and its long-term liquidity. Wagner also looks into a company's capital structure by evaluating the debt-equity ratio to find out how heavily a firm is in debt, (Online Simulation, 2009).Questions to be asked when deciding how to weight financial ratiosProbably the most important question that should be asked is how profitable is the company. Lambda TV is the better choice of the two firms because the company has continually...

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