Note: The Assignment is divided into 2 Parts1)Ratio Analysis XXXXXXXXXXWords)2)Reflective Practice (700 words)Part 2 should be in reference with Part 1 Ratio Analysis Format:1300 word response...

Ratio Analysis

Format:1300 word response

Background

In preparation for this assignment, read the following article:

‘The imperial CFO’, 2016,The Economist, June 18.

Financial managers are, arguably, vital to the survival of any corporation. Indeed, Chief Finance Officers (CFOs) are becoming as prominent as the CEOs of the companies they belong to (‘The imperial CFO’ 2016), mostly because they have a say on decisions that directly impact the performance and value of businesses. These decisions are, invariably, related to which projects to pursue (capital budgeting), how to raise funds (capital structure), and how to safeguard the business’ daily operations (working capital management).

In this context, knowing how to interpret financial statements has the same importance to a manager as the ability to understand medical results has to a physician. One of the most important tools in this regard is the so-called financial ratio analysis, whereby information is combined in a way that portrays the status of the company in terms of important aspects (e.g., liquidity, profitability, efficiency, etc.). Not only that, the methodology is very appealing since it allows companies to be benchmarked against its peers or, else, the industry they are part of.

Discussion questions

To get a good grasp of financial ratio analysis, this assessment task asks you to identify a company whosecapital structure ratios(debt ratio and interest coverage ratio) andprofitability ratios(return on assets and return on equity) are either readily available (i.e. throughIBISWorldorMarketLine) or, else, can be calculated through its financial statements. Then, upon collecting observations from the last 3–5 years and industry aggregates, answer the following:

1. Based on atrend analysis, elaborate on whether the company you have chosen is improving or deteriorating in terms of its capital structure and profitability ratios, highlighting any areas (and appropriate actions) for improvement.
   
   
2. How does the company compare to its peers, i.e. are its ratios similar to theindustry- average financial ratios(or else, to those from its main competitor)? Would there be any issues of concern and, if so, how to address them?
   
   
3. Is it possible to identify any relationship between capital structure and profitability ratios? (Hint: frame your discussion in terms of risk vs return).

Assessment Requirements

• The required word length for this assessment is 1300 words (plus or minus 10%).
  
  
• Your report will be marked according to the criteria outlined in the assessment grading criteria outlined in the Subject Outline.
  
  
• In terms of structure, presentation, and style you are required to use:
  • AIB standard report format
  • AIB preferred Microsoft Word settings
  • author-date style referencing (which includes in-text citations plus a reference list).
    These requirements are detailed in theAIB Style Guide.
    
    

• Acknowledge the sources of facts appropriately. Use a minimum of four (4) references.

• All references must be from credible sources such as books, industry-related journals, magazines, company documents and recent academic articles.

• Your grade will be adversely affected if your report contains no/poor citations and/or reference list and if the word length is beyond the allowed tolerance level (seeAssessment Policyavailable on AIB website).
  
  
• Useful resources when working on your report include:
• AIB Assignment Guide
• AIB Style Guide
• AIB Online Library

Reflective Practice

Format:700-word reflection

Background

In preparation for this assignment, read the following article:

Farrell, CJ 2006, ‘Personal financial ratios: an elegant roadmap to financial health and retirement’,Journal of Financial Planning, vol. 19, pp. 56–63.

Financial ratio analysis can also be useful in the management of our own personal finances. If, on the one hand, it is used by financial managers to assess corporations’ financial health, while on the other it can indicate to us whether our current financial status is in accordance with our future financial goals (e.g., those associated with our retirement). Farrell XXXXXXXXXXpresents an analysis whereby financial ratios are calculated based on household financial statements and benchmarked against specific metrics related to the age profile and other characteristics of the household.

Reflection questions

In light of having completed theratio analysisin your previous assessment task, and reading the Farrell XXXXXXXXXXarticle, in this task we ask you to reflect on the benefits that financial ratio analysis could bring to your personal wealth management.

In particular, address the following:

1. How would your personal financial ratios compare to those proposed in the article? (there is no need to disclose any personal information).
   
   
2. Are the ratios proposed reasonable to you? Explain your reasoning.
   
   
3. In your view, what are the main limitations of financial ratio analysis?

Reflective Practice Requirements

• The required word length for this assessment is 700 words (plus or minus 10%).
  
  
• Your report will be marked according to the criteria outlined in the assessment grading criteria outlined in the Subject Outline.
  
  
• In terms of structure, presentation, and style you are required to use:
  • AIB standard report format
  • Also, refer to theGuide to Reflective Practicefor further information and guidance on writing for critical reflection.
  • AIB preferred Microsoft Word settings
  • author-date style referencing (which includes in-text citations plus a reference list).
    These requirements are detailed in theAIB Style Guide.
    
    

• Acknowledge the sources of facts appropriately. Use a minimum of two (2) references.

• All references must be from credible sources such as books, industry-related journals, magazines, company documents and recent academic articles.

• Your grade will be adversely affected if your report contains no/poor citations and/or reference list and if the word length is beyond the allowed tolerance level (seeAssessment Policyavailable on AIB website).
  
  
• Useful resources when working on your report include:
  • AIB Style Guide
  • AIB Online Library