Best Financial Ratios
This week we covered Chapter 14, Financial Statement. Financial Statement is the use of different calculations and formulas to determine the financial health of an organization. Lean Manufacturing and Activity Analysis is about eliminating waste and focusing on the movement of goods and services in respect to customer demand. In regards to financial statements, please pick out four ratios discussed in the chapter that would best analyze the company you chose in Week 1’s threaded discussions. Discuss why these are the best calculations for the company you chose and in detail explain how they effectively analyze the financial health of that firm.
Please make an initial post and two replies to either your classmates or professor. The initial post must be at least 75-150 words with one external reference in APA format, while your replies must be at least 100 words.
Week 8 Discussion
The financial statements of an organization rely on its performance. Managers, lenders/creditors, employees, and investors need the information to evaluate a company’s financial position. Investors need well-analyzed information to get the financial data ratios are computed. Financial ratios include profitability, liquidity, solvency, and debt ratios. Abercrombie and Fitch Company’s financial statement for the year ending January 30th, 2021, is analyzed below using a ratio. All figures in thousands
These ratios show the company ability to convert its assets to revenue considering shareholders equity, operation cost
Assets turnover=net sales/average assets
3125384/1657451=1.88 since the ratio is above; it indicates the company is utilizing its assets well to generate sales/revenue
Shows the company’s ability to finance its current obligations using the current assets available.
Current ratio=current assets/current liabilities
1661629/959399=1.73 implying that the company can pay its obligation using the available current assets.
Indicate firm’s capability to have long term survival in the market, also referred to going concern of an organization.
Debt ratio=total liabilities/total assets
2365590/3314902=0.714 the debt ratio is above 0.6, which investors prefer. The management needs to reduce liabilities.
Debt equity ratio
Indicates the financing source of a company, either equity or debt, from financial lending companies.
Debt/equity ratio=total debts/total equity
343910/949312=0.3622 below one means owners’ equity finances the company shareholders equity. Management needs to maintain its shareholders.
Earnings per share=net income-preferred stock dividends/average common shares outstanding
Net income= (114)
Average common shares=63
(114)/63= (1.82) negative earnings per share are bad for a company. The shareholders are at risk of quitting the organization. No investor can risk investing in the business. Hence the management needs to reduce operating expenses for better revenue.
The four Ratios I choose for Lowes are Asset Turnover Ratio, Ration of Fixed Assets to long Term Liabilities, Current Ratio and Quick Ratio. All of these have to with Assets and Liabilities within the company and I think theses are the most important ones for Lowes to know how their assets vs their liabilities are helping to bring profit.
1. Asset Turnover- is important in the fact that it lets Lowes know how effectively they are using their assets, to generate revenue.
2. Ratio of Fixed Assets to Long Term Liabilities- is also very import to Lowes in that how much fixed assets they must support to pay their long-term debt for example any Pensions or postretirement for employees.
3. Current Ratio- would be how Lowes’s assets and liabilities compare to be able to pay short term obligations. It is how they can use their current assets to keep its current debts paid.
4. Quick Ratio- It is how Lowes would pay their current liabilities with quick assets they have such as cash, and accounts receivable.
The company I am choosing for this week 1 discussion is VF Corporation. VF was founded in October 1899; the company is first established in Pennsylvania as the Reading Glove and Mitten Manufacturing Company by John Barbey and a group of investors and is Headquarters in Greensboro North Carolina. VF is an American worldwide apparel and footwear company with brands including Timberland, Vans, Dickies and many more. The company’s more than 30 brands are organized into four categories: Outdoor, Active, Work, and Jeans. The company’s revenue averages 13.8 billion annually. VF Corporation relies on managerial accounting due to planning budgets, Marketing and Overhead cost. They also must make decisions on selling products, directing and motivating almost 70,000 employees, controlling their plans and Performance Evaluation to run the company.
Explanation & Answer length: 75 words.
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