FEMSA 2007: THE FINANCIAL STATEMENT ANALYSIS IMPACT OF DIFFERENCES IN MEXICAN AND US GAAP 1. Compute the following ratios for 2007 using the financial statements prepared using Mexican FRS and expressed in pesos. [Assume the weighted average number of shares outstanding is 17,891,000] a. Current Ratio: Current assets/Current liabilities b. Inventory Turnover: Cost of Goods Sold/Average Inventory c. Profit Margin on Sales: Net Income/Net Sales d. Debt to Assets Ratio: Total Liabilities/Total Assets e. Book Value per Share: Common Stockholders’ Equity/Outstanding Shares 2. Compute the same ratios listed in 1 using the amounts expressed in US$. What are the implications for international financial …show more content…
The accounts or amounts that affect all the financial statement need to be adjusted or consolidated. For example, for US GAAP these accounts appear as part of the Investment in shares capitation and equity, in other cases these same accounts appear consolidated. These small differences produce totally different results. 4. Determine the percentage difference between the results of your computation in requirements #1 and #3 by using #1 as the base [ie., (#3 -#1) /#1]. Which ratio has the biggest difference? Smallest difference? What difference in US and Mexican GAAP do you suspect had the biggest impact on financial statement differences? What are the implications of differences between US GAAP and foreign GAAP for international financial statement analysis? Do you think the cause of the biggest difference here is unique to FEMSA? The ratio that has the biggest difference is Debt to Assets Ratio and the one that has the smallest difference is Inventory turnover. Profit Margin on Sales had the biggest impact on financial statement differences because this ratio reflects one of the most important results of a company, the profit that it has obtained for the sales of its products. US GAAP and foreign GAAP are similar but there exists some problems between them especially on how financial statements are presented, how revenues are recognized and on what the fair market value is. According to Hernán A.
Pologeorgis (2012) stated that the diversity of accounting principle has an essential impact on the stock markets, corporate management, and financial reporting. He pointed that when people seeking for international capitals, varies of dissimilar accounting principles create discrepancies in their financial reporting. If people cannot understand the differences between IFRS and GAAP, they may have the chance to make the wrong decisions and loss money in the capital markets. Pologeorgis (2012) also mentioned that international investors have to relearn the new principal in order to be more familiar with the international standards. Based on above, there is a keen motivation for people to understand the differences and similarities of GAAP and IFRS. This research will show business people the main similarities and differences of GAAP and IFRS.
2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.
The Group’s consolidated accounts are prepared in accordance with generally accepted accounting principles in the United Kingdom (“UK GAAP”), which differ in certain respects from generally accepted accounting principles in the United States (“US GAAP”). Differences which have a significant effect on the consolidated net profit and shareholders’ funds of the Group are set out below. While this is not a comprehensive summary of all differences between UK and US GAAP, other differences would not have a significant effect on the consolidated net profit or shareholders’ funds of the Group. The differences have been shown as gross of tax with the related
DQ3: What are some common ratios that are used to analyze financial information? Which two ratios do you think should be of greatest interest to: (a) A pension fund considering the purchase of 20-year bonds? (b) A bank contemplating a short-term loan? (c) A common stockholder?
Wells Fargo shows a much higher profitability ratio than Samsung, with over 8X that of Samsung. This is to be expected as services are typically more profitable than hardware sales which operate on leaner margins. Wells Fargo also outperforms Samsung significantly on return on sales with over 25X better performance. This again is attributable to better margins on services than hardware. Wells Fargo has a much stronger return on equity than Samsung with a Dupont ratio over 5X higher than Samsung's. Samsung has a stronger financial leverage ratio than Wells Fargo with almost 20% lower ratio for Samsung. Samsung also has a much lower total asset turnover than Wells Fargo. This is attributable to the quick turnover of assets in the manufacturing industry compared to the slow turnover of assets in the financial services sector.
Comparing the performance of divisions operating in different countries is difficult due to legal, political, social, economic and currency differences. Additionally companies in different countries may adopt different accounting standards, which makes the financial statement not comparable. Calculation on ROI, RI and EVA for subunits that operate in different countries needs to be adjusted for differences in inflation and changes in the exchange rates.
A/ Mexico has some different accounting issues because I think that when US bail out Mexico from their debt they adopted a more reliable accounting method. They had to open their financials and become more transparent with their financials.
• Present 5 years of statements – Ratio – Trend Analysis – See if ratios are improving
1. Please conduct a financial ratio analysis using the data in Exhibit 2. How do the results reflect different strategies pursued by the 4 firms?
This paper examines financial ratio analysis by defining, the three groups of stakeholders that use financial ratios, the five different kinds of ratios used and their applications, the analytical tools used in analysis, and finally financial ratio analysis limitations and benefits.
The second ratio represents the fraction of EBIT (i.e., operating profit) that the firm keeps after financing
In this case the concentration is on “Company Performance Measurement”, using the “Ratios”, before we answer to the question, we have to focus a bit on the “Financial Ratios”
We analyzed assumptions required to adopt each of proposed approaches. Approach (b) - $US cash flow discounted at $US rate - assumes that:
5. A complete analysis of the company’s financial statements for a minimum of the most recent three years of available data including a comparison of the company's ratios to most recent year’s peer company average ratios. Complete the ratio calculations yourself. Do not copy them from another source.
Part 1 : Examine and analyze the financial ratios for eight pairs of unidentified companies and match the description of the company with the financial profile derived from the financial ratios.