This website uses cookies to ensure you have the best experience. Learn more

Financial Statement And Ratio Analysis: Key Tools To Successful Financial Management

2633 words - 11 pages

Financial Statement and Ratio Analysis: Key Tools to Successful Financial Management Executive SummaryHow do firms assess their own strengths and weaknesses? How does a firm measure management's performance? Finally, how do firms compare themselves against the competition? The answer to these questions lies in the fundamentals of financial management. A crucial element in the success of any business organization is understanding the fundamentals of financial management. "Financial management focuses on business decisions that add value to the firm" (Baker & Powell, 2005, p. 4). In order to make sound financial decisions that create value, a firm's management must critically employ a number of financial analysis principles and techniques. Financial statement and ratio analysis are the most common techniques utilized in today's business environment as a means to assess a firm's financial health. Although financial statement and ratio analysis have significant limitations, these tools are designed to provide essential guidelines and strategies for making well-informed managerial and business decisions.IntroductionA company's finances and operations are integrally connected. The activities, method of operation, and competitive strategy all serve as the foundation of a firm's financial structure. Conversely, almost all financial decisions affect company operations to some degree. The information presented on a firm's financial statements provides management with a valuable window to this reality. Financial statement analysis is the process by which management critically evaluates and compares relationships between various financial statement components. As a result, managers' are able to monitor and improve company performance as well as predict future financial health. Key financial decisions are based on management's ability to utilize financial analysis as a tool to measure the firm's financial performance, the effectiveness of its management, and as a means of comparison to companies within the same industry (Mautz & Angell, 2006).A firm uses financial analysis as a tool to make sound financial decisions, which contribute to general corporate objectives. It is imperative for a firm's management to view financial analysis as a means to ask the right questions about the firm's financial health; not expect clear-cut answers. Possessing the abilities to sort and determine which information is the most relevant and reliable is crucial to successful financial analysis.Financial statements report a firm's past financial performance and current financial position. They are designed to provide information on four primary business activities: planning, financing, investing, and operating activities. Accordingly, the effects of operating activities and other events are recorded in the appropriate financial statement(s). Because many transactions are reflected in more than one statement, a set of financial statements is required to evaluate a...

Find Another Essay On Financial Statement and Ratio Analysis: Key Tools to Successful Financial Management

General Motors - Financial Ratio Analysis

1283 words - 5 pages General Motors - Financial Ratio Analysis I. General Motors History Highlights In its early years the automobile industry consisted of hundreds of firms, each producing a few models. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that if several automobile makers would unite, it would increase the protection for the group. He formed the General Motors Company in Flint, Michigan, in 1908

ADC Tellecommunications Financial Ratio Analysis

1519 words - 6 pages like asynchronous transfer mode (ATM), synchronous optical networks (SONET) and most wireless communications systems, provide significant opportunities for ADCT. The company currently focuses on enabling communications service providers to deliver high-speed services to residential and commercial customers. The following is an annual analysis of ADCT's financial ratios of years 1995-1999. Overall Performance Measures      The averaged price

Financial Ratio Analysis of Microsoft

889 words - 4 pages long-term investments as to their shareholders' pocket. Microsoft has good financial standing and controls a lot of the computer industry.2.Efficiency RatiosAsset turnover ratio and net income per employee are good measures for a company's efficiency. The former ratio shows management's ability to use assets to produce sales, while the latter indicates the employee's productivity. If either of these two ratios is low, inefficiency may be an

Financial Statement Analysis

1164 words - 5 pages After establishing that Macy's and JCPenney have adequate internal controls and use an independent public accounting firm to confirm the accuracy of reports, the next step is to examine the relationship among financial statement numbers and the trends in those numbers over time. "Financial statement analysis is used to evaluate the performance of a company with an eye toward identifying problem areas and to use the past performance of a company

Analysis of Financial Statement

579 words - 2 pages leverage measures used to tell whether a company is using financial leverage. Debt ratio is the total liabilities to the total of liabilities and owners equity whereas the debt/equity ratio is the ratio of total liabilities to total owner’s equity. Both of these measures are the same concept but just stated in a different manner. In conclusion, from looking at Panorama’s financial statement and using some of the ratio analysis formulas, the company’s

Financial Statement Analysis

1320 words - 5 pages lower ratio implies that the business is financially stable. The information below tells us that Target is a greater risk to creditors than Toyota and AT&T. AT&T does not report inventory on the financial statement, therefore, the quick and current ratio are the same. The quick ratio shows that Target has more assets than liabilities, putting them in a stable financial situation even though they have the higher ratios.Current Ratio

Financial Statement analysis

2680 words - 11 pages confirmed, theconfirming bank becomes liable for the payment in case the issuing bank refuses to payagainst the L/C.e) Transferable L/CTransferable L/C is a perfect financial tool for middlemen to secure their margin withoutinvolving any funds. It allows dealing with more than one beneficiary. When atransferable L/C is issued in one's favor, he can transfer it to any seller and use it as apayment.f) L/C payable at sight"Payable at sight" means

Financial Ratio Analysis of two companies

3173 words - 13 pages Company In a Different Industry12Changes in Assessment Method12Conclusion13References14Appendix A - Sample Company's Financial Statements from 1999 - 200115Appendix B - Financial Ratio Analysis of Sample Company19AbstractThis research paper will evaluate Sample Company using review standard financial ratio analysis techniques and assess its potential as a good investment. This is written in the form of a memo to the CEO of an Alabama-based firm

Financial Ratio Analysis - Harry’s Hamster Limited

2471 words - 10 pages strategy. Boston: Harvard Business School Press. Helfert, E., (2001). Financial Analysis: Tools and techniques, a guide to managers. New York: McGraw Hills. Hill, C., and Jones, G., (2009). Strategic management theory: an integral approach. Mason: Cencage learning. Madura, J., (2006). Introduction to business. Mason: Thomson publishing. McDonald, B., and Morris, M., (1984). The statistical validity of the ratio method in financial analysis: An

Financial Ratio Analysis of Metalrax Plc

1689 words - 7 pages "profitability", shareholder would choose return on shareholders' funds to make a decision whether invest a company or not; meanwhile, a bank would consider a company's return on capital employed before lending money. With significant accounting ratios, this paper assesses the profitability, liquidity, management of working capital and the capital structure of Metalrax Group plc and finally compares performance and financial position between two

Financial Ratio Analysis on Philip Morris

2573 words - 10 pages 21.2 22.3Operating Margin (%) 16.94 19.44 20.65Pre-Tax Margin 15.63 18.04 22.51Net Profit Margin (%) 10.51 11.25 13.81Effective Tax Rate (%) 32.42 34.9 35.5Liquidity Indicators 12/31/2004 12/31/2003 12/31/2002Quick Ratio 0.49 0.42 0.3Current Ratio 1.1 1 0.91Working Capital/Total Assets 0.02 0 (0.02)Debt Management 12/31/2004 12/31/2003 12/31/2002Current Liabilities/Equity 0.77 0.85 0.98Total Debt to Equity 0.67 0.91 1.18Long Term Debt to Assets 0.18

Similar Essays

Financial Ratio Analysis

1451 words - 6 pages document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000. Financial Statement Ratios Profitability Ratios The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most significant value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and it's

Johnson And Johnson Financial Ratio Analysis

1405 words - 6 pages development. The company has enough cash and the management drive to support this initiative. Since Johnson and Johnson holds patents more than 54000 products the likelihood of new initiative success is very high. References your business with financial ratio analysis. Retrieved October 14, 2007 from, R., Myers, S. & Marcus, A. (2003). Fundamentals of Corporate Finance. Retrieved October 14, 2007 from University of Phoenix Online.

Financial Case Analysis Ratio Analysis

652 words - 3 pages The financial ratios used in this problem show that Bethesda Mining has some work ahead of them. There is substantial room for improvement for some of the ratios involved. A more thorough analysis would require ratio information from the mining industry as a whole but a small snapshot is provided below.The current ratio is low. Bethesda Mining's current ratios over the two years given indicate negative net working capital. Insufficient cash to

Financial Ratio Essay

1281 words - 5 pages finishes Bi-Monthly Training Report Template (Bi-MTR) Appendix 4: Bi-MTR "If you are going to achieve excellence in big things, you develop the habit in little matters. Excellence is not an exception, it is a prevailing attitude." --Charles R. Swindoll their shift, and in turn giving feedback to the line manager for proper check. Key Skills Development*: Outline the key skills that you have acquired as a result of the work that you have done e.g