Financial Analysis

1523 words - 6 pages

Evaluating financial performance is an integral part of any business. Without the ability to measure performance, a company will have no grasp of its financial health. All companies must evaluate past performance and plan for the future. This is done through both internal and external analysis of performance. The following paper analyzes the financial performance of Riordan Manufacturing through trend analysis, common-sized analysis, ratio analysis, and industry analysis.Riordan BackgroundRiordan Manufacturing, Inc. is a global plastic manufacturer that employs over 500 employees, has a projected annual earning greater than $45 million, and a clientele that includes: automotive parts manufacturers, aircraft manufacturers, the Department of Defense, beverage makers and bottlers, and appliance manufacturers. The company's primary mission is to remain one of the leading companies in plastic manufacturing and to increase profitability annually by millions.Trend AnalysisTrend analysis, a form of horizontal analysis, is used to identify trends in a company's historical financial figures to gain expectations of a company's performance and find its financial condition. Also known as trend percent analysis and index number trend analysis, they are changes in important information. Trend analysis is a useful way to predict the financial future of a company.To find Riordan's trend for example, the analyst will take the analysis period amount, divide this number by the base period amount, and multiply the total by 100 to equal the trend percent. Another analysis to use to get the trend is the time series analysis. A time series is a sequence of data points, measured typically at successive times, spaced at uniform time intervals. Many companies will use these techniques to predict future sales, cash flow and in turn, can determine how much to invest and or how much inventory to purchase for future periods of time.Common-sized AnalysisCommon sized financial statements display all items as percentages. Using this type of financial statement will allow for an analysis either between companies or between different periods of one company. By using common sized financial statements, management and investors can see directly what percentage of an asset or liability has changed and how much it has gone down or risen. Investors are able to see and compare a company in different periods to see if a company is profitable from year to year or if a company is losing money from year to year. The common sized financial statement provides a quick analysis using percentages to let management and investors know, for example, what portion of sales or revenue is cost of goods sold.Two common sized financial statements that are used are the common sized balance sheet and the common sized income statement. In a common sized balance sheet, each value is listed as a percentage of total assets, total liabilities, and stockholders' equity. The individual amounts for assets,...

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