FIN 320 Final Project Financial Analysis Report (3)

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Southern New Hampshire University *

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320

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Finance

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Apr 3, 2024

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FIN 320 Final Project Financial Analysis Report Financial Analysis, Financial Evaluation, and Financial Recommendations 1. Financial Analysis A. Financial Calculations: Using the latest quarter’s financial statements for your chosen business and the Financial Formulas spreadsheet, calculate the financial formulas below to assess the business’s financial health. ● Working capital: o Current Assets 1,669,343 o Current Liabilities 1,087,707 581,636 o The total amount will be used to pay shareholders and reinvest back into the business, indicating short-term financial health by assessing available current assets after paying current debts. ● Current ratio: o Current Assets 1,669,343 o Current Liabilities 1,087,707 1.534735917 o This ratio shows the company's ability to pay its short-term liabilities within a year. A ratio between 1.2-2 is considered good ● Debt ratio: o Total Liabilities 5,025,179 o Total Assets 7,991,493 .628816 o “A debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.” (Fernado,J) ● Earnings per share: o Net Income 317,000,000 o Shares Outstanding 28,000,000 11.32142857 o We have a good number indicating that after everything is paid off then those who invested in GMC will be paid out. o ● Price and earnings ratio: o Stock Price 1868 o EPS 41 45.5 o A higher PE ratio,like 45.5, means there is a high chance for higher growth rates in the future 1

● Total asset turnover ratio: o Total Revenue 2,478,000,000 o Total Assets 7,911,000,000 .31323 o A ratio of .31 is a low ratio which means we are not generating a lot of revenue relative to our assets ● Financial leverage: o Total Assets 7,991,000,000 o Shareholder’s Equity 2,886,000,000 2.768884269 o A ratio higher than 2 is considered bad since it means we have more debt than equity ● Net profit margin: o Net Income 313,220,000 o Total Revenue 24,719,500 12.67096826 o This shows that after all expenses are paid we are left with $12.67 ● Return on assets: o Net Income 313,220,000 o Total Assets 791,100,000 3.9593 o A ROA belower %5 is not good. A higher ROA means a company is more efficient at generating income. We have a low ROA because of the high amount of assets we have. ● Return on equity: o NI - Pref. Div. 313,000,000 o Shareholder's Equity 28,860,000 10.84546085 o A 10.8 means we doing well in terms of growth through equity financing B. Working Capital Management: Working capital management involves managing current assets and liabilities, including cash, marketable securities, debtors, and stock. It is crucial for a company's profitability and liquidity. Effective management ensures sufficient cash flow to meet short-term operating costs and debt obligations. Working capital improves credit rating and allows for growth opportunities. Efficient management also leads to improved profitability and operational efficiency. It ensures business continuity, improves customer relationships, enhances shareholder value, and reduces financial costs by reducing external financing reliance. C. Financing: Businesses finance operations and expansion through two types which are debt financing and equity financing. Debt financing involves borrowing money over time, usually with interest, from sources like bank loans, bonds, or trade credit. Equity financing raises money by selling “company shares, often through IPOs or venture capital investments”(Parker,T). Venture capitalists invest in start-ups and small 2

businesses with long-term growth potential, while angel investors invest their personal capital in start-ups in exchange for equity. D. Short-Term Financing: Short-term financing sources can help businesses improve their financial health by providing immediate liquidity for operational costs, growth opportunities, or managing cash flow fluctuations. Common options include trade credit, bank overdrafts, short-term loans, commercial paper, and factoring. Trade credit allows suppliers to provide goods or services on credit, while bank overdrafts allow businesses to withdraw more money than their account can hold. Commercial paper is an unsecured debt instrument issued by corporations. Based on how much assets we have I would advise our company to go with factoring. We are not in a position to take out more loans and with factoring we would be able to pay off some debts in order to improve our numbers.Factoring does not involve loans or interests and while we will lose some receivables I believe taking care of our debts will help us in the long run. E. Bond Investment: Corporate bonds offer regular income, higher returns, and diversification benefits. However, they also carry credit risk, interest rate risk, and liquidity risk. Ethical factors should be considered when investing in certain companies. For example, investing in a company with a poor environmental workplace could cause harm to our image and workers.. To compare potential returns, investors can use the Yield to Maturity (YTM), “YTM = [(C + (F - P) / n) / ((F + P) / 2)] * 100”(Fernando,J), and consider the company's environmental practices. Overall corporate bonds offer both benefits and risks depending on the company we choose. F. Capital Equipment: Investing in capital equipment can increase efficiency, reduce costs, and improve a business's reputation. Environmentally friendly equipment improves the image of the company since we are in a time period where the awareness of green energy is very important to our consumers. However, it also comes with risks such as high upfront costs, uncertainty, and potential environmental impacts. Ethical factors should be considered when investing in capital equipment, considering the impact on stakeholders like employees, customers, and the environment. The investment should not lead to job loss or reduced wages, but rather to reduce the business's environmental impact. As a restaurant company we should focus on equipment that is safe for the environment and our employees managing the equipment. G. Capital Lease: A capital lease is a “lease agreement that provides the lessee with the benefits and risks of owning a leased asset” (Hayes, A) . Benefits include asset ownership, tax benefits, fixed payments, and potential depreciation. Risks include depreciation, maintenance and repair costs, and long-term commitment. Ethical considerations include transparency, fair treatment, and sustainability. Businesses should disclose the existence of the lease in financial statements, ensure timely payments, and consider the 3

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