Working Capital As A Financial Metric

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities.

Ratio Analysis is a type of Financial Statement Analysis that is utilized to achieve a quick indication of a firm's financial performance in numerous key regions. Financial ratios aid in deciding the connection between two variables in the financial statements. The data necessary for the computation of the ratios is supplied by the financial statements of the firm. Areas where performance has improved or deteriorated over time can be recognized this way. Ratios are utilized methodically to deduce the strengths and weaknesses of a firm and also its historical performance and current financial conditions.

Working capital is the measure of a company’s efficiency and operating liquidity. The working capital is usually calculated by

Additionally, implementations in working capital programmes are effective especially in GSK’s operations due to stable and shorter conversion days than of AZN. However, there are limitations included in interpreting its ratios: one might be that averages have not been used and another; that both companies have implemented its capital management at different periods of time; therefore, the costs of manufacturing, preparation in launches of new pipeline products and further implementations in manufacturing as well as restructuring its working capital has had its impacts in increasing cost of sales for certain periods; hence distorting its figures. This may result in uncertainty of how well a company operates over time as stability does not

Lawrence Sports is a manufacturer of sporting goods facing a fiscal dilemma in the early spring of 2011. Between the months of March and April, the company would experience an impasse within the context of its Current Cash Conversion Cycle. Here, an improved strategy for working capital management is called for.

Examining financial ratios for a particular period of time can be used to identify unusual changes thus alerting the management on the progress of the business venture. Financial ratios are also helpful in carrying out financial analysis and forecasting. They also allow the owner of the business and the entire management to come up with business specific goals that can easily be traced to determine the company’s progress towards achieving them.

Ratio analysis is a useful tool for analyzing financial statements. Calculating ratios will aid in understanding the company’s strategy and in understanding its strengths and weaknesses relative to other companies and over time. They can sometimes be useful in identifying earnings management and in understanding the effect of accounting choices on the firm’s reported profitability and growth. Finally, the ratios help in obtaining a better understanding of a firm’s current profitability, growth, and risk which can improve forecasts of future profitability and growth and estimates of the cost of capital.

Working or functioning capital is the extent at which the organization’s cotemporary possessions enhanced from the liabilities. In this scenario group A evaluate the financial statement of Wal-Mart that includes balance sheets, cash flow statements, and suggestion by the managerial administration along with the postscripts to the financial statements of account that needs to demonstrate how every existing resource as well as liability has influenced the tactics that are concerned with the cash management administration. Moreover perceiving the upcoming year’s prediction of Wal-Mart’s profitability or income would boost up by 20%, we then give a diversified suggestion concerning working

HCS/571 Finance Resource Management Sept 24, 2013Rosetta Stringfellow, MBA, BSRatio Analysis Ratio analysis is a widely used managerial tool that compares one number with another to gain insights that would not arise from looking at either of the numbers separately. Ratio analysis is used to examine and interpret the relationship between two numbers on a financial statement. This is done so that the managers of a facility can determine whether or not the organization needs to change any of their financial variables in order to remain competitive in their market. The ratio analysis converts numbers into meaningful comparisons which managers can use

A successful business requires effective planning and financial management. Ratio analysis can improve understanding of the financial results and trends over time, providing key indicators of organizational performance (Demonstrating Value, n.d.). Financial ratios are used by stakeholders including creditors, corporate controllers, accountants, financial analysts, and investors. Analyzing ratios can help determine the liquidity, profitability, debt management, and stability of a corporation. Time series analysis allows users to see where a company has been and where they appear to be going and comparing the ratios to competitors offers insight into the ability to compete and thrive in their markets.

Ratio analysis is the most common form of financial analysis. It provides relative measures of the firm's conditions and performance.

In case balance sheet items have an efficient management, this can reduce a firm’s NWC. By more collecting receivables in aggressive way, long-term financing method should not be a way that firm may rely on (which may be costly) to fund its operations. Ideally, the current liabilities should cover most of the financing for current assets, and the shareholders equity the rest, from a lenders point of view. (Strischek, 2001)

Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.

In this paper I’ll analyze the fundamental differences between the working capital structures and components for Google and Oracle, and speculate upon the main reasons why such differences exist; how each company could improve its working capital positions. As a Wall Street Analyst who has to recommend one of the companies as an investment to a company’s clients; based solely on that company’s working capital; as an Investment Banker who has to recommend loaning a substantial amount of capital to one company based solely on that company’s working capital.

Thus, keeping the importance of working capital management in view, the present study aims to analyze: