Part C
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School
York University *
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Course
2500
Subject
Finance
Date
Feb 20, 2024
Type
Pages
2
Uploaded by GeneralAnt15112
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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