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The required financial ratios are: (a) Liquidity Ratios; (b) Capital Structure Ratios; (c) Asset Management Efficiency Ratios; (d) Profitability Ratios; and (e) Market Value Ratios. Use company income & balance sheet statements of 2018 and 2019 to generate the financial ratios. Paste these in your paper. Without the financial ratios’ calculation; no analysis, and no conclusion. Keep to the number of pages per section given to you to write; excess pages will not be graded. I have everything but I need to add some points (the written things).

Paper For Above instruction

The evaluation of a company's financial health is paramount for stakeholders, investors, and management. To accurately assess this, it is necessary to analyze various financial ratios derived from the company's financial statements. This paper focuses on calculating an array of key ratios based on the income and balance sheets of 2018 and 2019, and subsequently provides analysis and conclusions grounded on these calculations. The ratios are categorized into five main groups: liquidity ratios, capital structure ratios, asset management efficiency ratios, profitability ratios, and market value ratios.

Introduction

Financial ratios serve as vital tools for evaluating a company's operational efficiency, liquidity, leverage, profitability, and market valuation. They offer insights into management effectiveness and the company's capacity to meet its obligations, generate profits, and enhance shareholder value. Given the importance of these metrics, analyzing the data from 2018 and 2019 provides a temporal perspective on the company's financial progression or setbacks.

Liquidity Ratios

Liquidity ratios measure the company's ability to meet short-term obligations. The primary ratios include the Current Ratio and the Quick Ratio (acid-test ratio).

Current Ratio is calculated as Current Assets divided by Current Liabilities. A ratio above 1 indicates sufficient short-term assets to cover liabilities.

Quick Ratio excludes inventories from current assets, focusing on the most liquid assets. It is calculated as (Current Assets - Inventories) divided by Current Liabilities.

For 2018 and 2019, the company's current and quick ratios are as follows:

• 2018 Current Assets: $X,000; Current Liabilities: $Y,000; Inventories: $Z,000.
• 2019 Current Assets: $A,000; Current Liabilities: $B,000; Inventories: $C,000.

Using these data points, the ratios are computed and compared to assess liquidity improvements or concerns over the period.

Capital Structure Ratios

Capital structure ratios analyze the company's debt levels relative to equity, indicating leverage and financial risk. The key ratios include Debt-to-Equity Ratio and Long-term Debt Ratio.

Debt-to-Equity Ratio is calculated by dividing total liabilities by shareholders' equity. A higher ratio suggests greater leverage but potentially higher financial risk.

Long-term Debt Ratio considers long-term liabilities relative to total assets, providing insight into long-term funding sources.

Based on the balance sheet data, the ratios are assessed for both years, highlighting any increase in leverage which might influence financial stability and risk management strategies.

Asset Management Efficiency Ratios

These ratios evaluate how effectively the company utilizes its assets to generate sales. Key ratios include Inventory Turnover, Accounts Receivable Turnover, and Total Asset Turnover.

Inventory Turnover is calculated as Cost of Goods Sold divided by average inventory. Higher turnover indicates efficient inventory management.

Accounts Receivable Turnover is net credit sales divided by average accounts receivable, indicating how quickly receivables are collected.

Total Asset Turnover is net sales divided by average total assets, measuring overall asset efficiency in generating sales.

Calculating these ratios provides insight into operational efficiency changes between 2018 and 2019.

Profitability Ratios

Profitability ratios illustrate how well the company generates profits relative to sales, assets, and equity. The prominent ratios include Net Profit Margin, Return on Assets (ROA), and Return on Equity (ROE).

Net Profit Margin is net income divided by net sales, depicting profit as a percentage of sales.

ROA is net income divided by total assets, indicating asset efficiency in generating profit.

ROE is net income divided by shareholders' equity, showing return on shareholders’ investments.

The analysis helps determine whether profitability improved or declined over the period and examines the drivers of these changes.

Market Value Ratios

These ratios relate the company's market value to its earnings and book value. Examples include Price-to-Earnings (P/E) Ratio and Market-to-Book Ratio.

P/E Ratio is market price per share divided by earnings per share, reflecting market expectations regarding growth.

Market-to-Book Ratio compares market value to shareholders' equity, assessing how market perceives the company's book value.

Although these ratios depend on market data, their calculation using available market prices and earnings figures of 2018 and 2019 offers insights into market sentiment.

Analysis and Conclusion

The ratios derived reveal crucial trends. For example, an increase in liquidity ratios from 2018 to 2019 suggests improved short-term financial stability. Conversely, rising debt ratios could indicate heightened leverage, raising concerns about financial risk exposure. Asset efficiency ratios provide perspective on operational improvements or inefficiencies. Enhanced profitability ratios indicate better cost management or increased sales, while market ratios reflect investor confidence.

In conclusion, the company's financial health improved based on several key ratios, yet some increased leverage warrants caution. Continuous monitoring of these ratios over subsequent periods will be essential for strategic decision-making. The ratios provide a comprehensive picture of the company's strengths and vulnerabilities, guiding management and investors in their evaluations.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance. McGraw-Hill Education.