Phase II In this phase, you will employ various tools for financial analyses to
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Phase II
In this phase, you will employ various tools for financial analyses to evaluate operating efficiency, investing performance and financing strategy. Output from these financial analyses will be used as a basis of subsequent prospective analyses. Following are few tips for your financial analysis. Organize your report in the following ways:
Introduction.
Follow the sustainable growth rate framework to organize ratio analyses;
Make sub-sections based on this framework
Overall Profitability,
Operating management,
Investment management,
Financing decision and dividend policy etc.
Sustainable growth rate
In each subsection, provide ratios in tabular format shown below and provide your comments as detailed as possible to assess for operating, investing, and financing performance.
Cash flow analysis
Conclusion
Appendix
Use following ratios from your textbook (Chapter 5)
Overall Profitability:
ROE decomposition traditional (follow Table 5-2 in your text)
ROE decomposition alternative (follow Table 5-4 in your text)
Assessing Oprating Management
Net Profit Margin
Gross Profit Margin
NOPAT Margin
EBITDA Margin
Tax rate (based on income statement)
Evaluating Investment Management
Working capital management and turnover ratios
Accounts receivable turnover
Inventory turnover
Accounts Payable turnover
Days Receivable (Average collection period)
Days Inventory
Days Payable
Operating Cycle
Cash Cycle
Long-Term Assets Management
Long term asset turnover
PP&E turnover
Total asset turnover
Financial Management
Short-Term Liquidity ratios
Working Capital
Current Ratio
Quick Ratio
Cash Ratio
Operating Cash Flow Ratio
Debt and Long-Term Solvency ratios
Liabilities-to-equity ratio
Debt-to-equity ratio
Net-debt-to-equity ratio
Debt-to-capital ratio
Net-debt-to-net-capital ratio
Sustainable growth ratios
ROE * (1 – Dividend payout ratio)
Dividend payout ratio = Cash dividends paid/Net income
Cash flow analyses Follow Table 5-11 in your text (you have already done it with Phase I) and provide your comments on all key issues relating cash flow.
Format of tables
Use the following format for tables for presenting ratios in your report. For example, you are doing financial analysis for Pfizer and using J&J Inc. as a close competitor for benchmarking Pfizer’s performance.
Table 1
ROE Decomposition- Traditional (follow Table 5.2)
As Reported
Ratios
(your firm)
Pfizer
(your firm)
Pfizer
(competitors)
J&J
Industry Average (if available in Google or Yahoo, etc.)
2019
Prior year
2020
Most recent year
2020
Most recent year
Most Recent
Net Profit Margin
6.1%
8.1%
4.1%
X Asset Turnover
2.94
2.15
4.30
= ROA
18%
17.41%
17.63%
X Financial Leverage
2.58
3.50
1.50
=ROE
46.5%
60.9%
26.4%
Appendix
Actual financial statements –as reported for the firm and for the competition.
Standardized financial statements –for the firm only (the same what you have done for Phase I).
Provide common-size financial statements for a number of years (3 years) and that of competitor for the latest year to facilitate intra company and inter-company comparison (in appendix);
Any other information you would like to furnish.
