Part C

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York University *

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Finance

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Feb 20, 2024

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Answer Ratio Generic Formula Define details for your assigned company (1) Equity ratio correct Equity ratio = shareholder’s equity / total assets 6,417.60 / 6,626.8 = 0.9684 (2) Working capital turnover Working capital turnover = revenue / average working capital 1,315.7 / (((1,383.1 - 50.2) + (751.4 - 43.2)) / 2)) = 1.2892 (3) Current ratio correct Current ratio = current assets/ current liabilities 1,383.1 / 50.2 = 27.5518 (4) Quick ratio correct Quick ratio = quick assets (cash and equivalents + accounts receivables) / current liabilities (1,196.5 + 135.7) / 50.2 = 26.5378 (5) Inventory turnover Inventory turnover = COGS / average inventory 176.9 / (((28.1 +0.1) + (32.4 +0.5)) /2) = 5.7805 (6) Interest coverage correct Interest coverage = operating income / annual interest expense 820.7 / 0 (did not borrowed any amounts under credit facilities during the period) = 0 (7) Average collection period correct Average collection period = (average of net trade accounts receivable / net sales) * 365 (((135.7 + 119.8)) / 2) / 1,315.7) * 365 = 35.44 (8) Return on assets correct Return on assets = operating income / average total assets 820.7 / ((6,626.8 + 6,209.9) / 2) = 0.1279 (9) Free cash flow correct Free cash flow = cash from operating activities - cash used in investing activities (including dividends) 999.5 - (145.5 +197.6) = 656.40 (10) Dividend payout ratio correct Dividend payout ratio = common dividends per share / earnings per share 1.28 / 3.66 = 0.3497 11. What is the liquidity position of the company you are analyzing? The current ratio of 27.55 and the quick ratio of 26.54 represent the liquidity position of Franco Nevada Corp. Since industry standards prefer a ratio greater than 1, the liquidity position of Franco Nevada Corp. falls way above the standard. Thus, Franco Nevada has a significantly strong liquidity position, meaning there is a substantial excess of current assets over current liabilities. 12. What is the liquidity trend of the company you are analyzing?
The liquidity trend demonstrates an increase from Franco Nevada’s 2021 current ratio, which was 17.4, which jumped to 27.55 in 2022. This plays a crucial part in the short-term financial stability of the company as they have bills to pay on a recurring basis. As the company pays off their short-term liability and has its assets increasing, the liquidity trend will continue to grow. 13. Based on your analysis, what is your recommendation to investors: hold, buy, sell? Provide one reason, supported with numbers or ratios, to justify your opinion. Based on my analysis and data gathered, I’d suggest inventors hold their shares or, if they want, buy. The current ratio has increased from the previous year, indicating the company’s ability to satisfy its short-term liabilities. The current ratio of 27.55 entails considerable excess assets over liabilities, emphasizing more liquid assets. The quick ratio 26.54 supports this claim, as both ratios are above the industry standard 1. Additionally, Franco Nevada pays out 34.97% of its earnings as dividends, leaving a large sum of money to be reinvested or to strengthen other financial qualities. Overall, investors are advised to hold their shares or buy more, as Franco Neveda has shown the economic improvements they’ve made in 2022 compared to 2021.
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