FINANCIAL ANALYSIS

Financial Analysis

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Name of the Institution

Financial Analysis

Introduction

Financial analysis serves as the lifeblood for any organization. The financial ratios indicate the overall feasibility and performance of the firm. Different ratios have conflicting interpretations. The three articles summarized in this paper talks about the different financial tools to assess a firms overall health. EVA and MVA are very frequently used as well as misused by the organizations. These articles elaborate their advantages and limitation in a company's perspective.

A) Financial Ratios

Ratios are very important for any firm. They indicate the overall performance and profitability of any company. They are also used for comparing companies within the industry.

Liquidity Ratios

Liquidity ratios measure the enterprises' ability to meet its short-term obligations. The focus of liquidity ratios is the current elements of a course's balance sheet. It includes current ratio, quick ratio etc (Houston, 2009).

Solvency Ratios

They measure the potential of the business to pay its bills in the long term. Financial lenders and owners are very interested in these ratios as they reflect the financial risk of the company.

Profitability Ratios

It measures the company's ability to generate profit for its owners. Management is quite interested in these ratios as they depict the overall health of the company and performance of the company. This category includes net profit margin and gross profit margin ratios.

Activity Ratios

It measures a management's ability to use the assets entrusted to them. It indicates how efficiently and effectively the management is utilizing the assigned resources. This category includes ratios of asset utilization like Inventory turnover, Fixed assets turnover etc (Powell, 2005).

Operating ratios

They cover the firms operations that are revenues and expenses. These include the ratios related to the day to day business operations.

B) Current Ratio11= Current Assets/Current Liabilities

= $2,680,112/$1,039,800 = 2.58x

Quick Ratio11= (Current Assets - Inventory)/Current Liabilities

= ($2,680,112 - $1,716,480)/$1,039,800 = 0.93x

The company's current and quick ratio is 2010 indicates poor liquidity situation. These ratios were relatively higher in 2009 and much better in 2011. However these ratios are still below the industry average.

Bankers, stockholders and management of the company are equally interested in knowing the liquidity position of the company. It is very imperative to know what value the company will generate if it liquidates all its assets.

C) Inventory Turnover11= Sales/Inventory

= $7,035,600/$1,716,480

= 4.1x

DSO11=Accounts Receivables/ (Sales/365)

= $878,000 /($7,035,600/365)

= 46 days

Fixed Assets Turnover11= Sales/Net Fixed Assets

= $7,035,600/$836,840

= 8.4x

Total Assets Turnover11 = Sales/Total Assets

= $ 7,035,600/$3,516,952

=2.0x

Computron's utilization of assets is better against the industry in case of fixed-assets. But other than that, the industry is in a better position in asset utilization.

D) Debt Ratio11 = Total Liabilities/Total Assets

= $1539800/$3,516,952

= $43.8%

Times Interest Earned = EBIT/Interest = $502,640/$80,000

= 6.3x

EBITDA Coverage= /

= ($622,640+$40,000)/($80,000+$40,000)

= 5.5x

The TIE ratio is comparatively better. Other have very nominal difference.

E) Profit Margin = Net Income/Sales

= $253,584/ $ 7,035,600

= 3.6%

Basic Earning Power = EBIT/Total Assets

= $502,640/ $3,516,952

=14.3%

ROA = Net Income/Total Assets

= $253,584/$3,516,952

= 7.2%

ROE = Net Income/Common Equity

= $253,584/$1,680,936

= 12.8%

Profit margin is a good indicator as it is on the increasing trend. Other ratios are slightly ...