Financial Ratios Serve An Analytical Purpose

The following report is a brief comparative analysis of two of Australia’s largest deposit-taking financial institutions (FI), Australia and New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corporation (Westpac). This report seeks to identify which of the FIs has a greater aggregate return per dollar of equity and thus establish the highest performer, or most profitable, of the two. The Return on Equity Model (ROE) (Koch & MacDonald,

3. Current Ratio: Take current assets over/divided by current liabilities for this straight forward ratio. Only main drawback is that this ratio excludes inventory, but the reason for that is because a lot of companies have difficulty with converting their inventory into cash. This can also lead to analysis being over or understated. This ratio, like the quick ratio/Acid Test, is an exceptional ratio for determining if a company can handle their short-term obligations.

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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.

This report provides a financial quarterly trend analysis for Costco Wholesale Corporation, Inc. founded in 1983. Costco Wholesale Corporation is the seventh largest retailer company in the world. As of July 2012, it was the fifth largest retailer, and the largest membership warehouse club chain in the United States ("Wikipedia, the free," 2011). Costco Wholesale Corporation’s stock is publicly traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) under the symbol “COST”, which I will use as reference throughout this report.

Parrino, Kidwell, & Bates (2012) detail the current ratio as current assets divided by liabilities. The current ratio identifies a firm’s potential to pay short-term liabilities; higher liquidity is a good sign for potential creditors (Parrino et al., 2012). At the same time, however, the current ratio should not greatly exceed benchmarks of other competitors (Parrino et al., 2012). This could be indicative of mismanagement of current assets and less cash flow for investors (Parrino et al., 2012).

1.Suggest the financial ratio that most financial analysts would use to evaluate the financial condition of the company. Provide support for your rationale.

You current ratio is 1.70, which is a weakness. This is calculated by dividing current assets by current liabilities. This ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. Compared to year 11’s current ratio of 1.86, this indicated a slight decrease. In comparison to the industry data quartiles, this specific ratio falls below the first two quartiles of 3.1 and 2.1, but it slightly above the third quartile of 1.4. For company G, these numbers indicate a weakness, and the current ratio indicates the company would experience difficulties repaying its obligations in the short term. Improvements should be made in this area for Company G.

The highly levered capital structure had a significant effect on the findings of sections B and C. First of all, the ranges which resulted from the new calculation of the break points caused the weighted average cost of capital (WACC) at all range levels to drop. The WACC is calculated by multiplying the weights of the capital structure by the costs of

In comparison to the current ratio, which was a round 2.25 and the quick ration at 1, the difference is very small. They have both been static. This shows that the company’s current assets are not dependant on the inventory. Management is in control of the finances.

The common stock value increased 54.8%, from $42/share to $65/share, between 2000 and 2001. This is an indicate that the market likes what it sees in the performance and the management of Sample Company. In addition, it paid 1.2% in dividends for the past two years. Another key indicator, the Price to Earnings Ratio, fell from 12.0 to 10.7. This is not enough to be alarming. In fact, some investors, myself included, feel that lower Price to Earnings Ratios are not necessarily a good thing. The reason being that if a company is struggling to pay out large earnings per share, to make the denominator in the P/E equation large enough to keep the P/E ratio low, then often such financial pressures can take the attention of the management away from the company's operations and other important issues, like surviving as a going concern in a tough business climate.

The acid-test ratio is calculated by dividing a company’s quick assets by its current liabilities (Libby, 660). This ratio excludes those more illiquid elements of current assets before measuring a company’s current assets against its current liabilities (Spiceland, 134) (Libby, 660). Lastly, the cash ratio is calculated by adding a company’s cash and cash equivalents, and dividing them by its current liabilities (Libby, 659). While it does not consider most current assets, the cash ratio reveals the amount of current liabilities which a company could settle using only available cash and investments which will become cash in the near future (Libby, 659). While these ratios are not completely informative in isolation, they provide a snapshot of the liquidity of companies and can be useful to creditors when used in conjunction with other measures of long-term profitability (Spiceland, 135).

the acid test ratio known also as quick assets, this ratio used by company to show how good a company can quickly turn out its assets into cash to pay its current liabilities by the next 90 days in very short term. It is similar to current ratio but it requires more details, and narrow.

Current ratio indicates how liquidity the company pay off its obligations, in the case of MyToys, the current ratio has somewhat decrease from 2014 to 2015. The higher the current ratio the company has, shows that the company is more favorable. The debt ratio and debt to equity ratio of MyToys is high, means the company almost need to sell off all of its assets to cover its debts. Having more than 0.5 shows the company is in a risky situation. MyToys do depend more on the bank loan because it is still a new grow company. In 2015, the company has reached the maximum limit of overdraft from the bank. MyToys need to reduce its debts in the future in order to draw in more investors to invest in the organization.

Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.