1200 words The financial team has been properly selected and charged to proceed
ID: 2728712 • Letter: 1
Question
1200 words
The financial team has been properly selected and charged to proceed with their analysis of EEV's financial statements. In the course of their evaluation, they will be assessing the firm's operating performance, benchmarking their competitors, and looking at the industry using financial ratios as their source of measurement. However, the chief executive officer (CEO) of Electronic Equipment USA agrees with numerous practitioners who promote the use of nonfinancial measures as well as financial measurements to evaluate the performance of a given firm. Nevertheless, Tony agrees that nonfinancial measurements can be valuable, and he tends to support the premise that when evaluating operating performance, benchmarking competitors, and comparing industry results, nonfinancial measurements have little measurable value.
The CEO of the parent company agrees with numerous practitioners who promote the use of nonfinancial measures as well as financial measurements to evaluate the performance of a given firm. Nevertheless, Tony agrees that nonfinancial measurements can be valuable, and he tends to support the premise that when evaluating operating performance, benchmarking competitors, and comparing industry results, nonfinancial measurements have little measurable value.
Tony has asked you to present a position paper comparing the effectiveness and reliability of using financial measures as opposed to nonfinancial measures. Include the following:
Provide an analysis of the utilization of assets in terms of efficiency (or inefficiency).
What are measurements associated with returns and activity ratios?
Explain why you selected each specific measurement.
Then, review the electronic equipment industry using financial ratios.
Assess the firm's operating performance against these ratios.
Research the financial reports of 1 company in the electronic equipment industry, and compare it with the performance of Electronic Equipment Venture.
Include an Excel spreadsheet to support your analysis.
Use this information to support your position, and compare the effectiveness and reliability of using financial measures as opposed to nonfinancial measures.
22600
Electronic Equipment Venture Balance Sheet (In Thousands) 2008 2009 2010 Fcst Assets Cash 300 130 100 Accounts Receivables 5400 6700 8800 Inventory 6700 9000 12000 Total Current Assets 12400 15830 20900 Net Plant & Equipment 1500 1530 1700 Total Assets 13900 17360 22600 Liabilities Accounts Payables 3000 3100 4800 Notes Payables 450 600 1200 Accured Taxes 300 350 900 Current portion of long-term Debt 200 200 200 Total Current Liabilities 3950 4250 7100 Long-term Debt 1800 1700 1600 Shareholders equity 8150 11410 13900 Total Liabilities and Net Worth 13900 1736022600
Income Statement Thousands 2008 2009 2010 (Fsct) Net Sales 98800 108000 113500 Cost of good sold Total cost of good sold 68500 80250 85425 Gross Profit 30300 27750 28075 % 31% 26% 25% Expenses General & Administrative 3500 5300 5700 Marketing 7500 8500 9000 Operating Expense 9900 10610 11120 Total Expenses 20900 24410 25820 Income Before Taxes 9400 3340 2255 Taxes 3760 1336 902 Net Income 5640 2004 1353 Headcount Direct 2080 2400 2500 Indirect 320 350 400 Total Headcount 2400 2750 2900 Products 2008 2009 2010 Fcst Sales Margin % Sales Margin % Sales Margin % Electronic Equipment Television 4000 1000 25% 3500 900 26% 5000 1045 21% Computers 5000 2400 48% 5200 2300 44% 7600 3300 43% Medical 2300 1500 65% 3500 2000 57% 4000 1800 45% Automotive 15000 3200 21% 16000 2800 18% 15400 3000 19% Electronic Equipment Total 26300 8100 31% 28200 8000 28% 32000 9145 29% Electronic Equipment Parts Television 12000 3200 27% 13000 3050 23% 12000 2230 19% Computers 44500 13000 29% 50000 10500 21% 48000 10500 22% Medical 6000 3500 58% 7000 3700 53% 7500 3700 49% Automotive 10000 2500 25% 9800 2500 26% 14000 2500 18% Electronic Equipment Parts Total 72500 22200 31% 79800 19750 25% 81500 18930 23% Total 98800 30300 31% 108000 27750 26% 113500 28075 25%Explanation / Answer
The efficiency ratio is a ratio that is typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. Asset turnover ratio is an important financial ratio used to understand how well the company is utilizing its assets to generate revenue. ompanies need to keep a track on the asset turnover ratio. This ratio helps the company to measure how productive the business is and how much revenue is generated from its investment in the assets. A high asset turnover ratio is a sign of a better and efficient management of assets on hand. So, the companies need to analyze and improve their asset turnover ratio at regular intervals.
Activity ratios are used to measure how efficiently a company utilizes its assets. The ratios provide investors with an idea of the overall operational performance of a firm. The activity ratios measure the rate at which the company is turning over its assets or liabilities. In other words, they present how many times per year inventory is replenished or receivables are collected.
The different ratios are
1) Liquidity Measurement Ratios
Current Ratio
Quick Ratio
Cash Ratio
Cash Conversion Cycle
2) Profitability Indicator Ratios
Profit Margin Analysis
Effective Tax Rate
Return On Assets
Return On Equity
Return On Capital Employed
3) Debt Ratios
Overview Of Debt
Debt Ratio
Debt-Equity Ratio
Capitalization Ratio
Interest Coverage Ratio
Cash Flow To Debt Ratio
4) Operating Performance Ratios
Fixed-Asset Turnover
Sales/Revenue Per Employee
Operating Cycle
5) Cash Flow Indicator Ratios
Operating Cash Flow/Sales Ratio
Free Cash Flow/Operating Cash Ratio
Cash Flow Coverage Ratio
Dividend Payout Ratio
6) Investment Valuation Ratios
Per Share Data
Price/Book Value Ratio
Cash Flow Coverage Ratio
Price/Earnings Ratio
Price/Earnings To Growth Ratio
Price/Sales Ratio
Dividend Yield
Enterprise Value Multiple
The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations, such as railroads
The production expenses = 9900 , 10610 , 11120
Administrative expenses = 3500 , 5300 , 5700
Net sales = 98800 , 108000 , 113500
Operating Ratio =(production expense + administrative expense) / Net Sales
For three consecutive years it will be = 13 % , 14.7% , 14.81%
The operating expenses is in incresing trends.
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