About find one company, you can choose any kind name of company in US just for e
ID: 2530706 • Letter: A
Question
About find one company, you can choose any kind name of company in US just for example, but find company with publicly announced financial information on the internet. So, you can counting the number with these formula below:
a. formula for short-term solvency
b. formula for long-term solvency
c. DuPont ROE Analysis
d. market to book ratio
price earnings ratio
e. internal growth rate
sustainable growth rate
Q1 Please find one company (in your choice) with publicly announced inancial information. Apply the "Ratio analysis" techniques and concepts (in Ch. 2&3 of textbook) to provide financial analysis of this company with the following measures (A) Short-term solvency (B) Long-term solvency (C) DuPont ROE analysis (D) Market-to-Book ratio and Price-Earnings Ratio (E) Internal and Sustainable Growth RateExplanation / Answer
A. Short term solvency:
Current ratio = Current Assets / Current Liabilities = 3,810,744 / 2,032,501 = 1.87 times
Quick ratio = (Current Assets - Inventory) / Current Liabilities = (3,810,744 - 2,905,660) / 2,302,501 = 0.39 times
Cash ratio = Cash / Current liabilities = 488,329 / 2,032,501 = 0.24 times
B Long term solvency:
Total Debt Ratio = (Total Assets - Total Equity) / Total Assets = (6,846,029 - 2,719,277) / 6,846,029 = 0.60 times
Debt Equity ratio = Total Debt / Total Equity = (4,126,752 - 309,478) / 2,719,277 = 1.40 times
Equity multiplier = Total Assets / Total Equity = 6,846,029 / 2,719,277 = 2.52 times
Times Interest Earned ratio = EBIT / Net Interest = 1,135,210 / 69,555 = 16.32 times
(C) There are three components of ROE for DuPont analysis
1. Net Profit margin = Net Profit / Sales = 685,108 / 12,215,757 = 5.61%
2. Asset Turnover = Sales / Total Assets = 12,215,757 / 6,846,029 = 1.78
3. Equity multiplier = 2.52 (already calculated in part (B)
DuPont Return = 1. * 2. * 3. = 5.61% * 1.78 * 2.52 = 25.16%
(E)
Internal growth rate = ROA*b / (1-ROA*b)
where ROA = Net Income / Total Assets = 685,108 / 6,846,029 = 10%
Assuming that the retention or plowback is 2/3 = b, then
Internal growth rate = 0.1*(2/3) / (1-0.1*(2/3)) = 7.14%
Sustainable growth rate = ROE*b / (1-ROE*b)
where ROE = Net Income / Shareholder's equity = 685,108 / 2,719,277 = 25.19%
Assuming that the retention or plowback is 2/3 = b, then
Sustainable growth rate = 0.2519*(2/3) / (1-0.2519*(2/3)) = 20.18%
Please refer to the financial statement of Bed, Bath and Beyond at the link below:
https://www.nasdaq.com/symbol/bbby/financials?query=balance-sheet
*I have used 2017 values for Ratio analysis.