Calculate key financial ratios, operating cash flow, and the
sustainable growth rate for a hypothetical company and use those calculations
to evaluate the firm’s financial condition and performance.
Note: The
assessments in this course build upon each other, so you are strongly
encouraged to complete them in sequenceSHOW LESS
By successfully completing this assessment, you will demonstrate
your proficiency in the following course competencies and assessment
objectives:
·
Competency 1: Apply the theories,
models, and practices of finance to the financial management of the firm.
o Demonstrate the ability to complete a balance sheet,
income statement, and cash flow statements.
o Calculate operating cash flow.
o Explain how operating cash flow compares to free cash
flow.
o Evaluate a firm’s overall financial condition and
performance.
Competency 4: Integrate financial
analyses into general business management planning and decision making.
o Demonstrate the ability to accurately calculate key
financial ratios, including liquidity, activity, debt, and profitability.
o Analyze a firm’s performance from both time-series and
cross-sectional points of view.
Demonstrate your understanding of financial concepts by
completing the following calculations related to Jones Inc. and then evaluating
the firm’s financial condition and performance.
To complete this
assessment, use the information in theFinancial Assessments Template,
which is linked in the Resources under the Required Resources heading. Review
the financial statements for Jones Inc. and the comparative financial ratios
for the year-end review. Enter your calculations and written analysis directly
into the template, and show or explain your work where appropriate.
Problem
1.Calculate the firm’s 2015 financial ratios for liquidity,
activity (asset management), leverage (debt), and profitability.
Problem
2. Analyze the firm’s performance from both time-series and
cross-sectional points of view using the key financial ratios provided in the
template.
Problem
3. Calculate the operating cash flow based on your review of
the firm’s income statement.
·
How does operating cash flow (OCF)
compare to free cash flow (FCF)?
·
Why is the free cash flow so
meaningful to management and investors?
Problem
4. Calculate the sustainable growth rate based on your
calculations of return on equity (ROE) and assuming a 60 percent
dividend-payout ratio. How can a company increase its sustainable growth rate?
Problem
5. Evaluate the firm’s overall financial condition and
performance based on your analysis and then address these questions:
·
Is the company improving or
deteriorating over this three-year period?
·
How does your ratio analysis
justify your interpretation?
