Watch the Industry Averages and Financial Ratios video and use the industry classification from the financial services website to locate the company’s SIC code on the U.S. Department of Labor’s website.
Find the industry ratios for the company using the Dun & Bradstreet® Key Business Ratios link in the Week 2 Electronic Reserve Readings. If your company’s SIC code does not appear in the dropdown menu, choose another company.
Assume the inventory ratio is based on a traditional inventory system, but globalized markets and the supply chain make it critical to adopt lean principles to create a more efficient system.
Calculate the 14 ratios (show your calculations) for the company using the two most recent annual financial statements found on the financial information website you used earlier. Be careful not to use quarterly information, and include ratios for both years.
Note. You can access a downloadable Ratio Guide PDF by clicking the Help Guide link in the upper-right of the Dun & Bradstreet® Key Business Ratios window.
Compare the ratios for the company you selected with the appropriate industry ratios including profitability, solvency, and efficiency ratios shown on the Dun & Bradstreet® report.
Write a 350-word response about how the company you selected performed compared with the industry.
Instructor Notes: Also upload the following:
Formula and calculations of your company’s financial ratios for most recent two years (Excel) Dun & Bradstreet financial ratios for your company’s SIC code (exported to Excel) (Please delete the text in yellow-highlight above)
Industry Averages and Financial Ratios Paper
The purpose of this analysis is for our team to analyze how Amazon.com Inc. performed compared with the industry based on financial ratios. In Attachment 1, our team provides the industry ratios for the company using the Dun & Bradstreet Key Business Ratios. In Attachment 2, we provide the Balance Sheet and Income Statement information for the company’s most recent two years. In Attachment 3, our team calculates the company’s 14 financial ratios. In Attachment 4, we compare the financial ratios with appropriate industry ratios including profitability, solvency, and efficiency ratios. Analysis of Company’s Financial Ratios Compared to Industry’s Financial Ratios Xxxx
Provide an analysis of the selected company’s 14 financial ratios compared to the industry’s financial ratios. Compare the most recent two years from D&B industry average to the same two years from your calculated financial ratios. Use the “Median” from the D&B industry average
Remember to select financial ratios related to profitability, solvency, and efficiency ratios. Note: the analysis includes interpreting the importance of the company’s vs. the industry’s financial ratios. 3 points out of 3 possible points (please do not delete these lines with point scoring)
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Industry’s ratios from Dun & Bradstreet® Key Business Ratios
Solvency Ratios Solvency ratios measure the financial soundness of a business and how well a company can satisfy its short- and long-term obligations. D&B uses six key financial business ratios to measure a company’s solvency: • Quick Ratio, also called “acid test” or “liquid” ratio, considers only cash, marketable securities and accounts receivable because they are considered to be the most liquids forms of current assets. A Quick Ratio less that 1.0 implies “dependency” on inventory and other current assets to liquidate short-term debt. Cash + Accounts Receivable ÷ Current Liabilities • Current Ratio is a comparison of current assets to current liabilities, commonly used as a measure of short-run solvency, i.e., the immediate ability of a business to pay its current debts as they come due. Potential creditors use this ratio to measure a company’s liquidity or ability to pay off short-term debts. Current Assets ÷ Current Liabilities
• Current Liabilities to Net Worth Ratio indicates the amount due creditors within a year as a percentage of the owners or stockholders investment. The smaller the net worth and the larger the liabilities, the less security for creditors. Normally a business starts to have trouble when this relationship exceeds 80%. Current Liabilities ÷ Net Worth • Current Liabilities to Inventory Ratio shows, as a percentage, the reliance on available inventory for payment of debt (how much a company relies on funds from disposal of unsold inventories to meet its current debt). Current Liabilities ÷ Inventory • Total Liabilities to New Worth Ratio shows how all of a company’s debt relates to the equity of the owners or stockholders. The higher this ratio, the less protection there is for the creditors of the business. Total Liabilities ÷ Net Worth
• Fixed Assets to Newt Worth Ratio shows the percentage of assts centered in fixed assets compared to total equity. Generally the higher this percentage is over 75%, the more vulnerable a business becomes to unexpected hazards and climate changes. Fixed Assets ÷ Net Worth Efficiency Ratios Efficiency ratios measure the quality of a business’ receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers and whether the business is overtrading or undertrading on its equity. D&B uses five key financial business ratios to measure a company’s efficiency: • Collection Period Ratio is helpful in analyzing the collectability of accounts receivable or how fast a business can increase its cash supply. Accounts Receivable ÷ Sales x 365 Days
• Sales to Inventory Ratio provides a yardstick for comparing stock-to-sales ratios of a business with others in the same industry. A high ratio may indicate that sales are being lost because of low inventory and/or customers are buying elsewhere. A low ratio may indicate that inventories are obsolete or stagnant. Annual Net Sale ÷ Inventory • Assets to Sales Ratio shows how efficiently a business is usingits assets to generate revenue. A high ratio may indicate the business is not aggressive or that its assts are not fully used. A low ratio may indicate a company is selling more than can safely fulfilled by its assets. Total Assets ÷ Net Sales • Sales to Net Working Capital Ratio shows the number of times working capital turns over annually in relation to net sales. A high turnover rate may indicate that the business relies heavily on credit. Sales ÷ Net Working Capital
• Accounts Payable to Sales Ratio shows how a company pays its suppliers in relation to the sales volume being transacted. A low percentage may indicate a healthy ratio. A high percentage may indicate that the business may be using suppliers to help finance its operation. Accounts Payable ÷ Net Sales Profitability Ratios Profitability ratios measure how well a company is performing by analyzing how profit was earned relative to sales, total assets and net worth. D&B uses three key financial business ratios to measure a company’s efficiency: • Return on Sales (Profit Margin) Ratio measures the profits after taxes on the year’s sales. The higher the ratio, the better prepared the business is to handle downtrends brought on by adverse conditions. Net Profit After Taxes ÷ Net Sales
• Return on Assets (ROA) Ratio shows the after tax earnings of assets and is an indicator of how profitable a company is. Return on assets ratio is the key indicator of the profitability of a company. It matches net profits after taxes with the assets used to earn such profits. A high percentage rated indicates the company is well run and has a healthy return on assets. Net Profit After Taxes ÷ Total Assets • Return on Net Worth Ratio measure the ability of a company’s management to realize an adequate return on the capital invested by the owners in the company. Net Profit After Taxes ÷ Net Worth
Median Median is the value from the midpoint that falls halfway between the Upper and Lower Quartiles. Industry Quartiles Industry Quartiles are static values taken directly from the KBR database tables. The value from the midpoint that falls halfway to the top of the list is selected as the Upper Quartile. The value that is halfway between the median and the bottom of the list is selected as the Lower Quartile.