Chapter 17, Problem 15E

To determine

1)

Introduction:

Ratio Analysis

• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

• Current Ratio – It is a measure of the relation between the current assets and current liabilities and seeks to measure the ability of the business to fulfill its short term obligations.

• Current assets are assets that are convertible to cash within a period of one year or less. Current liabilities are liabilities that need to be discharged within a period of one year or less.

$\text{Current Ratio = Current Assets / Current Liabilities}$

• Net Profit Margin – It is a measure of the total Profit earned from sales after deduction of operating expenses, selling and distribution expenses and other indirect costs.

• It is often the most sought after financial measure to evaluate profitability since it gives a clear indication of the Profit / Loss of the company at the end of the reporting period.

$\text{Net Profit Margin = Net Profit / Turnover x 100}$

• Total Asset Turnover – A measure of the correlation between the Total assets employed and the turnover of the business.

• It seeks to evaluate the volume of sales in relation to the assets employed. It gives an indication of the sales in relation to the investment made in the assets and overall capital contribution to the company in the form of Assets.

$\text{Asset Turnover Ratio = Turnover / Assets x 100}$

To Calculate:

a) Current Ratio,

b) Net Profit Margin and,

c) Sales to Assets Ratio in Dollar and Yen

To determine

2)

Introduction:

Ratio Analysis

• Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

• It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

• Current Ratio – It is a measure of the relation between the current assets and current liabilities and seeks to measure the ability of the business to fulfill its short term obligations.

• Current assets are assets that are convertible to cash within a period of one year or less. Current liabilities are liabilities that need to be discharged within a period of one year or less.

$\text{Current Ratio = Current Assets / Current Liabilities}$

• Net Profit Margin – It is a measure of the total Profit earned from sales after deduction of operating expenses, selling and distribution expenses and other indirect costs.

• It is often the most sought after financial measure to evaluate profitability since it gives a clear indication of the Profit / Loss of the company at the end of the reporting period.

$\text{Net Profit Margin = Net Profit / Turnover x 100}$

• Total Asset Turnover – A measure of the correlation between the Total assets employed and the turnover of the business.

• It seeks to evaluate the volume of sales in relation to the assets employed. It gives an indication of the sales in relation to the investment made in the assets and overall capital contribution to the company in the form of Assets.

$\text{Asset Turnover Ratio = Turnover / Assets x 100}$

To Calculate:

Review results of the key metrics