10/3/2016 SLP FIN501
Strategic Corporate Finance (OCT2016FT1)
https://tlc.trident.edu/d2l/le/content/79164/viewContent/1882544/View?ou=79164 1/2
Module 1 SLP
THE TIME VALUE OF MONEY AND FINANCIAL STATEMENT
ANALYSIS
Conducting Financial Ratio Analysis
Select a publicly traded U.S. company that has paid a dividend for at least the last
three years, and conduct a financial ratio analysis. You will be using this company
for other assignments in this course; thus, please spend adequate time locating a
company. Please consider reviewing http://finance.yahoo.com to locate a company.
The company must have data available for you to conduct a financial ratio analysis.
It’s important to select a company in an industry that has industry ratio numbers.
You cannot select a privately held company.
Calculate all the following ratios for the company for the past three years and
compare them to the appropriate industry benchmarks:
Liquidity ratios:
Current
Quick
Asset Management ratios:
Inventory turnover
Total assets turnover
Fixed assets turnover
Days sales outstanding
Debt Management ratios:
EBITDA coverage
Timesinterestearned
Total debt to total assets
Profitability ratios:
Return on common equity
Return on total assets
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Strategic Corporate Finance (OCT2016FT1)
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Basic earning power
Profit margin on sales
Market Value ratios:
Market/book
Price/earnings
Price/cash flow
Create a table that contains the ratios for the various years. Then analyze the
information. Look at the trends in the ratios and comment on how they compare to
the industry benchmarks. Which ratios are strong? Which ratios need
improvement? If you were a stock investor, would you buy the company’s common
stock? Why or why not? If you were a bond investor, would you buy the company’s
bonds? Why or why not?
SLP Assignment Expectations
You are expected to:
Describe the purpose of the report and provide a conclusion. An introduction and
a conclusion are important because many busy individuals in the business
environment may only read the first and the last paragraph. If those paragraphs
are not interesting, they never read the body of the paper.
Answer the SLP Assignment question(s) clearly and provide necessary details.
Write clearly and correctly—that is, no poor sentence structure, no spelling and
grammar mistakes, and no runon
sentences.
Provide citations to support your argument and references on a separate page.
(All the sources that you listed in the references section must be cited in the
paper.) Use APA format to provide citations and references.
Type and doublespace
the paper.
Whenever appropriate, please use Excel to show supporting computations in an
appendix, present financial information in tables, and use the data computed to
answer followup
questions. In finance, in addition to being able to write well, it’s
important to present information in a professional manner and to analyze financial
information. This is part of the assignment expectations and will be considered for
grading purposes.
10/3/2016 Background FIN501
Strategic Corporate Finance (OCT2016FT1)
https://tlc.trident.edu/d2l/le/content/79164/viewContent/1882541/View?ou=79164 1/2
Module 1 Background
THE TIME VALUE OF MONEY AND FINANCIAL STATEMENT
ANALYSIS
The time value of money is an important, fundamental concept in finance. Time
value of money refers to present value and future value. It is used in various areas
of finance, including capital budgeting, bond valuation, and stock valuation. It is very
important that you understand the time value of money so that you are prepared to
study more advanced topics in the future.
Time lines are important to understand future value and present value problems. If
you are having difficulty understanding a time value of money problem, start with a
time line. With an annuity due, the cash flows at the beginning of the period. With an
ordinary annuity, the cash flows occur at the end of the period. If an annuity problem
doesn’t state if the cash flows occur at the beginning or the end of the period, by
default the cash flows occur at the end of the period.
When cash flows continue on forever, they are known as perpetuities. To find the
present value of a perpetuity, you simply divide the cash flow by the discount rate in
decimal notation.
Review these videos that focus on the time value of money:
Valuation of Money Podcast. (n.d.). Pearson Learning Solutions, New York, NY.
Valuation of Money Interactive Video. (n.d.). Pearson Learning Solutions, New York,
NY.
JohnFinance (2014). Compound Annual Growth Rate. Retrieved from
JohnFinance (2014). Present Value of a Perpetuity. Retrieved from
JohnFinance (2014). Present Value of a Growing Perpetuity. Retrieved from
http://www.youtube.com/watch?v=ikRczqxal4
JohnFinance (2014). The Time Period in a Future Value of a Lump Sum. Retrieved
from http://www.youtube.com/watch?v=_TwPBazoywg
Review these website links that focus on the time value of money:
McCracken, M., (n.d.). The time value of money. Retrieved
from http://www.teachmefinance.com/timevalueofmoney.html
Getobjects.com (2002). Future value. Retrieved
from http://www.getobjects.com/Components/Finance/TVM/fv.html
Listen
10/3/2016 Background FIN501
Strategic Corporate Finance (OCT2016FT1)
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Financial statement analysis is very important for securities analysts. Securities
analysts recommend to portfolio managers what stocks should be bought and sold.
Financial statement analysis involves analyzing various financial ratios for a
company over time and comparing those to the appropriate industry average. For
example, it is important for a company’s ROE to be increasing over time and greater
than the industry average. Although it’s very important for a firm to have strong
liquidity, it’s a negative sign if a firm’s quick or current ratios are excessively high.
There are five main categories of ratios: liquidity, asset management, debt
management, profitability, and market value.
Review these videos that focus on some financial ratios:
JohnFinance (2014). DebttoEquity
Ratio. Retrieved
from http://www.youtube.com/watch?v=0GkYIUfpmQ
JohnFinance (2014). Times Interest Earned Ratio. Retrieved from
Review this website link which focuses on financial ratios:
NetMBA (n.d.). Financial ratios. Retrieved from
http://www.netmba.com/finance/financial/ratios/
Optional Resources
Bookboon.com. (2008). Corporate Finance. Retrieved from
http://bookboon.com/en/economicsandfinanceebooks
Welch, Ivo. (2014). Corporate Finance (3rd Ed.). Chpts 2 and 13. Retrieved from
http://book.ivowelch.
info/ed3/toc.html
