Premium Essay

Interpreting Financial Statements

In: Business and Management

Submitted By tiopipo
Words 1052
Pages 5
INTERPRETING FINANCIAL STATEMENTS
Financial ratios can be defined as indicators of the performance of a company in a given period or comparing two or more periods and also comparing the performance of the company with competitors to evaluate the overall financial situation of both companies.
For this review we will compare two periods of Walmart Inc., and one period of Target to revise the financial performance of those two companies, the ratios are: Current ratio Walmart Target 2014 2013 2013 Current Assets 61,185,000 59,940,000 16,388,000 Current Liabilities 69,345,000 71,818,000 14,031,000 0.88 0.83 1.17
We can see that Walmart have current ratio below one meaning that all existing current assets will not be sufficient to pay off the current debt.
Target have a better ratio than Walmart it means they have 1.17 of current assets of every dollars to pay off their current liabilities. Quick ratio Walmart Target Current assets-inventory 16,327,000 16,137,000 8,485,000 Current liabilities 69,345,000 71,818,000 14,031,000 0.24 0.22 0.60
This ratio shows that Walmart have only 0.24 to pay every dollar of current debt, it means it does not include the inventory to pay off the current liabilities.
In this case the ratio is better than Walmart even though is not at least equals to 1 it is in better shape than Walmart having 0.60 compares to 0.22 in the year 2013. Inventory Turnover Walmart Target Cost of goods sold 358,069,000 352,297,000 50,568,000 Inventory 44,858,000 43,803,000 7,903,000 7.98 8.04 6.40
This ratio shows the numbers of times the inventory turned in a year calendar. In this case Walmart have a better position than Target showing a better ratio meaning that Walmart turns the inventory more times in a year. Days sales of inventory Walmart Target 365 days…...

Similar Documents

Premium Essay

Financial Statements

...Financial Statements Patty Reagan ACC/561 September 24, 2012 Bethany Kessel Financial Statements The financial statements of a company give the reader a view of the financial health of the company. The four major reports are the income statement, balance sheet, cash flow statement, and the statement of shareholders’ equity. By understanding the statements and how they relate to one another can help any individual to understand the financial position of the company and will aid in making good decisions when relating to the company. Each report is of importance to the management, creditors, and the investors. Income Statement The gains, revenues, losses, and expenses of a company are listed on the income statement (Johnson, 2012). The money that a company earned from the usual business operations is the revenue. The costs that are associated with earning revenue are expenses. If a company were to sell an asset, it will be considered to be either a capital gain or loss. The amount of net income is found on the cash flow statement as well. This report will be important to investors, creditors, and management. All involved parties want to see if the company is making money or if it is losing money. Balance Statement The balance sheet is a summary of a company’s assets, liabilities, and shareholders’ equity for a particular period (Balance Sheet, 2012). The three segments will give an investor a view of what a company owns and owes and the amount that......

Words: 887 - Pages: 4

Premium Essay

Interpreting Financial Statements for Business Acquisition

...on health related circumstances of physical labour. other systems used include the CAD computer aided design which assist engineers in the design aspect of manufacturing. MPM (management process manufacturing) is popular at Daimler, is gathers the methods and technologies used in the manufacturing thus assisting the management accounting department with reducing work in progress. _ EXPLAIN WHAT IS MEANT BY STRATEGIC POSITIONING AND IDENTIFY THE STRATEGIES USED BY THE COMPANY TO ACHIEVE ITS POSITION the modern management strategies used include the merger between Daimler-Benz and Chrysler an equal competitor in 1998 the merger of the two corporations resulted the corp ranking to be the with in the world of automobile internationally. financial the merger was not pleasing with the profit remaining constant and the revenue increasing the idea that the management had in mind of a synergy cost savings proved to be a failure. In 2007 the two automakers in incurred a decline in the share price which led to demerger within the corp and also the abrupt change of direction from preservation to absorption mode following the disappointing first six-month earnings introduced another problem in the case of “merger of equals” as declared pre-merger. other reasons leading to the demerger was chrysler's rapid growth in inefficiency, the production cost were outstandingly sky rocketing and also lacking diversification of product associated with overcapacity which led to the lost of market......

Words: 777 - Pages: 4

Premium Essay

Financial Statements

...called a financial statement. The financial statement lets the person and business know what debits have been taken place in a monthly and yearly time and also credits that have been done in a monthly ans yearly time. There are four types of a financial statement and that is a balance sheet, a profit and loss statement, a statement of a change in equity, and a statement of cash flow. These four types of a financial statement have their own purpose in the accounting field and they are all very important to the businesses and individual people that use each of them. The balance sheet lets the businesses and people that use this sheet know what assets, liabilities, and ownership equity at anytime they need it, monthly, quarterly, or yearly. The balance sheet is also a summary of a sole proprietorship, business partnership, and other business organizations, if companies and businesses need them depending on if there is an audit of the company or needing them for month end or yearly end purposes. A balance sheet usually has assets in one section of the statement and liabilities and net worth in the other section. There are two types of a balance sheet and that is an account form and a report form. The balance sheet for personal use has current assets such as cash flow whether is would be in the checking account and or in a savings account or liabilities such as mortgages, and other debits that go through the account. The profit and loss part of the financial statement......

Words: 1060 - Pages: 5

Premium Essay

Financial Statements

...Financial Statements In accounting there are four basic financial statements that are considered standard practice by the generally accepted accounting principles (GAAP). These are the income statement, the retained earnings statement, the balance sheet and the statement of cash flows. While each of these reports is very important in its own regard, they are also intermingled and depend on each other to represent a complete unbiased view of an organizations financial situation. The income statement reports revenues and expenditures for the given period of time. This report is important because it will show net income or net loss for a given period of time. However, not all monies received are considered revenue and not all monies put out are considered expenditures. For example money received from selling or issuing stocks are not considered revenue. The same holds true for dividends, they are not considered expenditures. This period of time can vary from organization to organization. Most reports are shown on a quarterly and annual basis. When the income statement is properly prepared will produce the company's net income. This amount is then transferred to the retained earnings statement. The retained earnings statement shows the income that is retained by the organization. This report not only shows changes but also the reason for said changes. This allows all interested parties to see and understand if there is a significant variation from the previous report.......

Words: 920 - Pages: 4

Premium Essay

Financial Statements

...Katrina Baron Financial Statements The four basic financial statements are the balance sheet, income statement, statement of cash flow, and the statement of retained earnings. The balance sheet depicts the current financial circumstances of the company. This reports the company’s assets, liabilities, and net equity as of a given point in time. The income statement reports the company’s cost and revenues. This reports the company’s income, expenses, and profits over a period of time. The statement of cash flow describes the changes is cash and cash equivalents. This reports the company’s activities, such as its operating, investing, and financing costs. The statement of retained earnings reports the changes in equity. Basically this explains the company’s retained earnings over the reporting period. The internal users would be managers and employees that use the financial statements. They would use the financial statements to obtain the data to use for any future budget concerns. The internal users can use the data to set performance goals for the company. They can also use the data to see where the company needs to increase revenue from a certain department in the company. Along with being able to see where they need to make cutbacks. The internal users rely on the financial statement to direct the company in all its daily activities. The external users for the financial statement would be investors and creditors. The data obtained from the financial statement would be......

Words: 326 - Pages: 2

Premium Essay

Analyzing and Interpreting Financial Statements

...Module 4 Analyzing and Interpreting Financial Statements QUESTIONS Q4-1. Return on investment measures profitability in relation to the amount of investment that has been made in the business. A company can always increase dollar profit by increasing the amount of investment (assuming it is a profitable investment). So, dollar profits are not necessarily a meaningful way to look at financial performance. Using return on investment in our analysis, whether as investors or business managers, requires us to focus not only on the income statement, but also on the balance sheet. Q4-2.B ROE is the sum of an operating return (RNOA) and a nonoperating return (the effective use of financial leverage – specifically, leverage multiplied by the spread). Increasing leverage increases ROE as long as the spread is positive. Financial leverage is also related to risk: the risk of potential bankruptcy and the risk of increased variability of profits. Companies must, therefore, balance the positive effects of financial leverage against their potential negative consequences. It is for this reason that we do not witness companies entirely financed with debt. Q4-3. Gross profit margins can decline because 1) the industry has become more competitive, and/or the firm’s products have lost their competitive advantage so that the company has had to reduce prices or is selling fewer units or 2) product costs have increased, or 3) the sales mix has changed from higher margin/slowly......

Words: 4611 - Pages: 19

Premium Essay

Financial Statements

...Financial Statement Relationships Interpreting the results from the financial statements is critical. However, understanding how the financial statements are linked, and how a set of numbers from one statement can change the set of numbers from another statement is fundamental to the success of the company. Interrelationships The four financial statements income statement, retained earnings statement, balance sheet, and statement of cash flows are connected because one set of numbers, either a balance or an entry, is reflected on another statement. According to Kimmel, Weygandt, and Kieso, (2011) the retained earnings statement is connected to the income statement because the bottom line of the income statement (net income) is added to the beginning retained earnings amount. This is used to determine the ending retained earnings. The ending retained earnings are then reflected on the balance sheet under owner’s equity. The net income becomes the first line of cash on the cash flow statement as the cash flows from operations. The balance sheet starts with the cash at the end of the year under current assets as reflected on the statement of cash flows. The cash flow statement connects all three financial statements as the statement begins with the net income from the income statement, then the cash at the end of the year becomes the first line of cash on the balance sheet. Relationship Between the Financial Statements Income statements, retained earnings statement,......

Words: 579 - Pages: 3

Premium Essay

Interpreting Financial Results

...Interpreting Financial Results FIN 571 January 6,2014 Interpreting Financial Results In the analysis four major categories of ratios are calculated. The major classes of ratios are: liquidity ratios, debt/solvency/leverage ratio, activity/efficiency ratio and profitability ratio. The liquidity position of the company was not bad in any of the two years, but in 2010 the per unit current asset available for per unit current liability had decreased. The company’s cash is hand was very high in 2010. Which enhanced the company’s cash position ratio in 2010. Among the ratios calculated, profitability ratios are the simplest.Little financial knowledge is necessary for understanding the profitability ratios.As the profitability ratio; gross margin, operating margin, net margin, EPS, ROA and ROE are calculated. Only the gross margin had increased in 2010 from 2009. The other probability ratios are highly dissatisfactory, especially the ROE. Turning the focus into the activity/solvency ratio also gave a similar picture as was captured from the profitability ratio. There was an increase in the average collection period either due to lose administration of the management or the company became liberal and loosed the credit policy. The efficiency level with which sales were generated in 2009 with the assets of the company fell abruptly in 2010. This again indicated the looseness of administration in using the assets of the company efficiently. From this, we can infer that the...

Words: 1787 - Pages: 8

Premium Essay

Interpreting Financial Results

...| Interpreting Financial Results | FIN/571 | Kathleene O’Keefe | Maurice Guliford | 10/16/2014 | | When looking at Financial Results many factors have to be calculated and analyzed to determine the company’s trends. The results presented will look at the last 3 years of International Business Machines (IBM) starting with 2011 to 2012, 2012 to 2013, and finally 2013 to 2014. The comparison of the financial ratios for IBM will be shown and the comparison to the industry benchmarks will be made. We will start from 2011 to 2012; in 2011 IBM showed a growth profit margin of 46.89% where in 2012 the Growth profit margin showed to be 48.13% a 1.24% increase from 2011 to 2012. In 2011 IBM showed a growth profit of 50,138 USD$ in millions compared to 50.298 in 2012 which showed to be a 160 in growth profit from 2011 to 2012. ("Follow Ibm Company Financials", 2014). The OPM ration went from 20.01% in 2011 up to 20.59% in 2012. From 2012 to 2013 IBM showed a growth profit margin from 2012 of 48.13 % to 48.63% in 2012. This was a 0.50% increase in profit margin from 2012 to 2013. The growth profit in 2012 showed to be 50,298 USD $in millions to 48,505 in 2013, which was a -1,793 in gross profit. The OPM went from 21.455 in 2012 to 19.65% in 2013 ("Follow Ibm Company Financials", 2014).  In 2014 revenue for the company’s growth markets were down 7 percent. From the second quarter of 2013 to the second quarter of 2014 IBM showed a 42 percent increase. Second Quarter...

Words: 593 - Pages: 3

Premium Essay

Interpreting Financial Summary

...Interpreting Financial Summary FIN/571 Corporate Finance March 9, 2015 University of Phoenix Lowes Lowes was founded in 1946 and has grown from a small hardware store in North Carolina to the second largest home improvement retailer worldwide and the 8th largest retailer in the United States. Lowe’s was a typical, small town hardware store selling everything from overalls and bicycles to wash tubs, work boots and even horse collars. Carl Buchan later purchased the Company from his brother-in-law and partner, James Lowe. Foreseeing the post-World War II building boom, Buchan concentrated on selling only hardware, appliances and building materials (Lowes, N.D.). By eliminating wholesalers and dealing directly with manufacturers, Lowe's established a lasting reputation for low prices. The sales grew over time, and additional Lowe's stores opened in neighboring towns throughout Western North Carolina. The company went public in 1961 and began trading on the New York Stock Exchange. During this time, U.S. housing starts soared and professional builders became Lowe's loyal customers, accounting for the majority of Lowe’s business. In 1982, Lowe’s had our first billion-dollar sales year, earning a record profit of $25 million (Lowes, N.D.). Lowes continues to grow and faces its challenges in the economy. We will be going through the past three years and compare historical data from 2012 to 2014. We will use five different ratios to analyze the collected data. The ratios are......

Words: 740 - Pages: 3

Premium Essay

Interpreting Financial Statements

...Interpreting Financial Results FIN 571 May 18th, 2015 Eric Hohl Apple Inc. Apple Inc. is one of the most reputable electronic companies on the market today. Their competitors are Samsung, Motorola, and LG. Of those three Samsung is one of their most important competitor. Looking over the financial statement from 2011 to 2014 they have been seeing a huge increase in revenue, cost of goods sold, their gross profit, and operating income. They began to see an additional expense in 2013 and 2014. Apple Inc. seen a huge loss in 2014 on sales of investments. The other areas that Apple Inc. began to see a huge trend would be EBT, Income Tax Expense, Earnings from Continuing Operations, and Net Income. According to their financial statements they are above their industry competitors in return on assets, gross margin, EBITDA Margin, Growth over Prior Year, and Diluted EPS before Extra. The areas where they were lower in industry comparison would be return on equity, return on capital, SG&A Margin, Accounts Receivable Turnover, Fixed Assets Turnover, Inventory Turnover, Current Ratio, Quick Ratio, Total Liabilities/Total Assets, Receivables, Inventory over prior year, Capital Expenditures, and Levered Free Cash Flow. In some of these area of inventory comparisons from Apple Inc. Samsung was actually holding up better in their receivables, Capital Expenditures, Inventory, and Return on Equity. Apple Inc. Financial Statement |Currency in ......

Words: 740 - Pages: 3

Premium Essay

Interpreting Financial Results

...Interpreting Financial Results FIN/571 January 25, 2016 Gurpreet Atwal Interpreting Financial Results This paper will interpret the financial statements from the past three years for Ascena Retail Group Inc (NASDAQ: ASNA). The paper will highlight four financial ratios including: the current ratio, the debt-to-equity ratio, the quick ratio, and the return on equity ratio. The financial statements that will be reviewed are from 2011 to 2014. Each ratio will be compared to the industry benchmarks to see where the company stands within the market. Current Ratio The current ratio will help us understand ASNA’s liquidity, meaning how quickly the company can turn its assets into cash in order to pay off its short-term obligations. The current ratio is calculated by taking the current assets and dividing it by the current liabilities. If the ratio is above 1 then the company has higher capabilities to pay off its short term obligations. As seen in figure 2 below, ASNA has posted a current ratio above 1 from 2011 to 2014, which means the company is in a healthy financial state. ASNA’s current ratio decreased from 2011 to 2013 but it saw an increase in 2014, which is a positive sign for investors (Parrino, Kidwell, & Bates, 2012). Debt-to-Equity Ratio The debt-to-equity ratio is used to determine how much debt a company is using to finance its assets compared to its value in shareholders’ equity. Investors want to know how much of a company’s assets are financed......

Words: 943 - Pages: 4

Premium Essay

Interpreting Financial Results

...Interpreting Financial Results FIN/571 September 29, 2014 Interpreting Financial Results Business owners and managers need to fully understand financial ratios and how useful of a tool they are to measurement management benchmarking and performance. Financial statements provide the information needed to calculate financial ratios which will consist of liquidity ratios, financial leverage, and profitability. Each ratio will provide a deeper look into the company. Financial leverage ratios will determine the company’s long term solvency. Liquidity ratios will give managers the support to monitor short term financials. Profitability ratios will inform managers how efficient and profitable the company is compared to other businesses in the industry. The sample of financial statements from Dean Foods will give a breakdown of three years’ worth of financial ratios. Current Ratio is a liquidity ratio used by managers and shareholders to the liquidity of the company. To calculate current ratio managers would divide current assets by current liabilities. More liquidity is what manger and shareholders are looking for to determine whether the company has the ability to cover the short term liabilities. In 2010 Dean Foods current ratio is 1.23, in 2011 the current ratio is 0.98, and in 2012 the current ratio is 1.07. Reviewing the numbers provided in 2010 Dean Foods was in the best situation to pay off short term debts and in 2011 Dean Foods was in the worse position out...

Words: 657 - Pages: 3

Premium Essay

Interpreting Financial Ratios

...Week 8 – CheckPoint – Interpreting Financial Ratios Problem 6.2 Upon review of Luna Lighting’s financial ratios there are a few items that indicate their inability to improve profitability. Their fixed asset turnover and total asset turnover ratios are down. These are two approaches to assess management’s effectiveness in generating sales from investment of assets. The fact that these ratios are lower that prior year means that more investment is required in the generation of sales. The gross profit margin, operating profit margin, and net profit margin, represent the firm’s ability to translate sales dollars into profits. Although the gross profit margin stayed the same, the operating profit margin declined almost a full point. The operating profit margin is a measure of the overall operating efficiency incorporating all of the expenses associated with normal business activities. The net profit margin was down most likely due to the operating profit margin decline. The last indicators are the return on assets and return on equity. Both of these ratios dropped considerably. These two ratios measure the overall efficiency of the firm in managing it’s total investment in assets and in generating return to shareholders. The return on assets indicates the amount of profit earned relative to the level of investment in total assets was low. For Luna Lighting this number dropped a point and a half from the previous......

Words: 286 - Pages: 2

Premium Essay

Financial Statements

...This paper is all about financial statements. An introduction to financial statements is presented to give a background to the reader. In the introductory part, the fundamental accounting concepts used in the preparation of financial statements are included together with the explanation of their basis. Examples are also given as an illustration of its application. This consist the first part. On the other hand, the second part is about the evaluation of the role of financial accounting in aiding the decision-making processes of the four different non-management stakeholder groups. An explanation of the nature of these decisions is also included. The paper ends with the issue on the conflicts arising from the diverse interest of the said entities to the financial statements. Introduction to Financial Statements One of the steps included in the accounting cycle is the preparation of the principal financial statements. They are the Income Statement and the Balance Sheet. These financial statements are a means by which the information accumulated and processed in financial accounting is periodically communicated to the users. Once the worksheet is completed, it is easy to prepare the financial statements as the necessary data have already been summarized. A third financial statement, which is the Statement of Cash Flows, provides information about cash receipts and cash payments into operating, investing, and financing activities. A......

Words: 2321 - Pages: 10