Complete the following tasks:
- Locate one publicly traded corporation that you believe is maximizing shareholder wealth. Using financial ratio analysis, justify why you believe the corporation is maximizing shareholder wealth.
- Locate one publicly traded corporation that you believe is not maximizing shareholder wealth. What is the market price of the stock of this corporation? How does it compare with the intrinsic value of the corporation? Justify why you believe the corporation is not maximizing shareholder wealth. Calculate and analyze the following thirteen financial ratios of the corporation and compare them to the appropriate industry average:
- Current ratio
- Quick ratio
- Cash ratio
- Total debt ratio
- Times interest earned ratio
- Cash coverage ratio
- Inventory turnover ratio
- Receivables turnover ratio
- Profit margin
- Return on assets
- Return on equity
- Price-earnings ratio
- Market-to-book ratio
Create a plan of action to get the corporation back to where the corporation is maximizing shareholder wealth. What do you anticipate will be the market price of the corporation
Complete the following tasks:
- Locate one publicly traded corporation that you believe is maximizing shareholder wealth. Using financial ratio analysis, justify why you believe the corporation is maximizing shareholder wealth.
- Locate one publicly traded corporation that you believe is not maximizing shareholder wealth. What is the market price of the stock of this corporation? How does it compare with the intrinsic value of the corporation? Justify why you believe the corporation is not maximizing shareholder wealth. Calculate and analyze the following thirteen financial ratios of the corporation and compare them to the appropriate industry average:
- Current ratio
- Quick ratio
- Cash ratio
- Total debt ratio
- Times interest earned ratio
- Cash coverage ratio
- Inventory turnover ratio
- Receivables turnover ratio
- Profit margin
- Return on assets
- Return on equity
- Price-earnings ratio
- Market-to-book ratio
Create a plan of action to get the corporation back to where the corporation is maximizing shareholder wealth. What do you anticipate will be the market price of the corporation
Related questions
Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.
Industry Averages
A. Obtain current industry averages of three of the financial calculations above for both companies and add this information to your spreadsheet for comparison. Ensure the accuracy and organization of your data.
B. In this context, how is each companyâs financial health? How do these two companies compare to one another? Consider the appropriate date range you should use.
| Netflix Inc. (NMS: NFLX) | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||||||||||||||
| Price Earnings Ratio = Market Value Per Share/EPS | 0.98 | 0.97 | 0.97 | ||||||||||||||||||||||||||||||||||||||||||||
| Debt Equity Ratio = Total Liability/Shareholder Equity | 4.07 | 3.59 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Free Cash Flow | 1467576 | 1809330 | 1113608 | ||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share | 0.44 | 0.29 | 0.634 | ||||||||||||||||||||||||||||||||||||||||||||
| Return on Equity = Net Income/Sharholder Equity | 0.0697 | 0.0552 | 0.1436 | ||||||||||||||||||||||||||||||||||||||||||||
| Net Profit Margin = Net Profit/Revenue | 0.0211 | 0.0181 | 0.0485 | ||||||||||||||||||||||||||||||||||||||||||||
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| E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7 | |||||||
| Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided. | |||||||
| Definitions: | Ratios or Percentages | Definitions | |||||
| A. | Net Income (before extraordinary items) ÷ Net Sales | 1 | Profit margin | ||||
| B. | Days in Year ÷ Receivable Turnover ratio | 2 | Inventory turnover ratio | ||||
| C. | Net Income ÷ Average Stockholdersâ Equity | 3 | Average collection period | ||||
| D. | Net Income ÷ Average Number of Shares of Common Stock Outstanding | 4 | Dividend yield ratio | ||||
| E. | Return on Equity â Return on Assets | 5 | Return on equity | ||||
| F. | Quick Assets ÷ Current Liabilities | 6 | Current ratio | ||||
| G. | Current Assets ÷ Current Liabilities | 7 | Debt-to-equity ratio | ||||
| H. | Cost of Goods Sold ÷ Average Inventory | 8 | Price/earnings ratio | ||||
| I. | Net Credit Sales ÷ Average Net Receivables | 9 | Financial leverage percentage | E | |||
| J. | Days in Year ÷ Inventory Turnover Ratio | 10 | Receivable turnover ratio | ||||
| K. | Total Liabilities ÷ Stockholdersâ Equity | 11 | Average daysâ supply of inventory | ||||
| L. | Dividends per Share ÷ Market Price per Share | 12 | Earnings per share | ||||
| M. | Market Price per Share ÷ Earnings per Share | 13 | Return on assets | ||||
| N. | [Net Income + Interest Expense (net of tax)] ÷ Average Total Assets | 14 | Quick ratio | ||||
| O. | Cash from Operating Activities (before interest and taxes) ÷ Interest Paid | 15 | Times interest earned | ||||
| P. | Net Sales Revenue ÷ Net Fixed Assets | 16 | Cash coverage ratio | ||||
| Q. | (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense | 17 | Fixed asset turnover ratio | ||||
Show ALL work
Ratio Analysis. The Williams Corporationâs forecasted 2010 financial statements follow, along with some industry average ratios.
| Forecasted Balance Sheet as of December 31, 2010 | ||||
| Cash | $ 72,000 | |||
| Accounts receivables | $ 439,000 | Accounts and notes payable | $ 432,000 | |
| Inventories | $ 894,000 | Accruals | $ 170,000 | |
| Total current assets | $1,405,000 | Total current liabilities | $ 602,000 | |
| Land and building | $ 238,000 | Long-term debt | $ 404,290 | |
| Machinery | $ 132,000 | Common stock | $ 575,000 | |
| Other fixed assets | $ 61,000 | Retained earnings | $ 254,710 | |
| Total assets | $1,836,000 | Total liabilities and equity | $1,836,000 | |
| Forecasted Income Statement for 2010 | ||||
| Sales | $4,290,000 | |||
| Cost of goods sold | $3,580,000 | Per-Share Data | ||
| Gross operating profit | $ 710,000 | EPS | $ 4.71 | |
| General admin & selling expenses | $ 236,320 | DPS | $ 0.95 | |
| Depreciation | $ 159,000 | P/E Ratio | 5.00 | |
| Misc. | $ 134,000 | Market price | $ 23.57 | |
| Earnings before Taxes | $ 180,680 | Number of shares outstanding | 23000 | |
| Taxes | $ 72,272 | |||
| Net Income | $ 108,408 | |||
| Industry Financial Ratios | Williamâs Financial Ratios | Ratio/Comment | ||
| Quick Ratio | 1x | Quick Ratio | ||
| Current Ratio | 2.7x | Current Ratio | ||
| Inventory Turnover | 7x | Inventory Turnover | ||
| Days Sales Outstanding | 40 days | Days Sales Outstanding | ||
| Fixed Asset Turnover | 13x | Fixed Asset Turnover | ||
| Total Asset Turnover | 2.6x | Total Asset Turnover | ||
| Return on Assets | 9.10% | Return on Assets | ||
| Return on Equity | 18.20% | Return on Equity | ||
| Debt Ratio | 55% | Debt Ratio | ||
| Profit Margin on Sales | 3.50% | Profit Margin on Sales | ||
| P/E Ratio | 6x | P/E Ratio |
Please show all work for the following questions.
a. Calculate the indicated ratios for Williamâs in the appropriate blanks.
b. Outline Williamâs strengths and weaknesses as compared to its industry. Be detailed in your ratio analysis.
c. Recommend at least three areas for correction. Be sure to support your recommendations.
d. Why is being trustworthy essential to success in the business world? Use at least two of the following scriptures to answer this question: Psalm 101:7, Proverbs 4:20-27, Proverbs 13:11, and Proverbs 28:12-13.
