Prepare a Report on Financial Ratio Analysis
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- Topic :: Financial Management
- Document Type :: Assignment help (any type)
- Subject :: Finance
- Number of Words :: 2500
- Citation/Referencing Style :: APA
Financial Ratio Analysis Task:-
The report will focus on how a company performs as compared to its competitors in the industry. The company’s weak and/or strong areas of performance must be identified and recommendations for improvement should be presented.
To get a good grasp of financial ratio analysis, this assignment asks you to identify a listed company and its major competitor firm whose financial ratios are either readily available (i.e., through Marketline) or, else, can be calculated through its financial statements (the annual reports are often available in company websites). Obtain (or calculate if not available) the following financial ratios for the selected company from the most recent 5 years:
- Liquidity Ratio – Current ratio
- Capital structure ratio – Debt ratio
- Efficiency ratio – Total asset turnover ratio
- Profitability ratio – Net profit margin
Then, upon collecting observations, conduct the following analyses:
- Peer-firm comparison & Trend analysis: Based on the five-year data, compare and elaborate on how the company AND the competitor were performing in terms of their liquidity, capital structure, efficiency and profitability ratios. Discuss the potential reasons (firm-specific, industry-specific, or macroeconomic reasons) behind their difference as well as any explanation for the recent trends. Then provide suggestions for improvement where possible.
- DuPont method: Return on equity (ROE) is a good indicator of a firm’s overall performance. How the ROE changed over the past five years for your chosen company and the competitor? Decompose ROEs into profitability, efficiency, and leverage for the five-year period. Which element had the most influence on the ROE? Why? Provide relevant suggestions for improvement.
- Market ratios: Calculate or retrieve the current Price-earnings ratio (P/E) of your selected company and the competitor from Yahoo!Finance. Compare and interpret their P/E ratios in light of your findings above, what do you find? If the P/E ratio of the firm is not available, why is it the case?
- Conclude & discuss the limitations of the above analysis. What are the current strengths/weaknesses of your chosen company if compared with the competitor? Why? Highlight any areas (and appropriate suggestions) for improvement for your chosen company.
Note: It is highly recommended that you use Microsoft Excel to create the tables and charts for ease of calculation and better presentation.
Support your arguments, you are required to use at least five (5) references for this report (in addition to the references for your data sources). These can include sources such as academic journal articles, books, industry-related journals, magazines and company documents.
Stock code on the ASX is AMP
Peer company is IOOF Holdings – code is IFL
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