Liquidity:

1. Calculate the company’s working capital, current ratio, and acid test ratio at [balance sheet dates].
2. Based on the results of your analysis above, assess the company’s overall liquidity position. Explain which ratios indicate particular strengths and/or weaknesses. Assume the following industry averages: Working capital = varies in proportion to firm size; Current ratio = 2.0; Acid-test ratio = 1.6.
3. Explain how working capital and the current ratio are related. Would you expect firms with large amounts of working capital to always have high current ratios?

Profitability:

4. Calculate ROI, showing margin and turnover, for 20__, 20__, and 20__.
5. Calculate ROE for as many of the past three years as you can.
6. Calculate the price/earnings ratio for as many of the past three years as you can.
7. Calculate the dividend payout and dividend yield ratios for as many of the past three years as you can.
8. Based on the results of your analysis above, assess the company’s overall profitability. Explain which ratios indicate particular strengths and/or weaknesses within the company. Assume the following industry averages: ROI = 15%; Margin = 10%; Turnover = 1.5; ROE = 20%; Price/earnings = 14.0; Dividend payout = 40%; Dividend yield = 5%.
9. As an investor in this company’s stock, would you be pleased with this year’s dividend yield? How would your dividend yield “expectations” change, if at all, if the company’s ROI was 5% higher? Explain.

TERM PROJECT (continued)

Financial Leverage:

10. Calculate the debt ratio (total liabilities to total liabilities and owners’ equity), and the debt/equity ratio (total liabilities to total owners’ equity) at______________________, 20__.
11. Based on the results of your analysis above, assess the company’s overall leverage position. What would you estimate the industry averages to be for the debt ratio and debt/equity ratio? Explain.
12. Explain the relationship between ROI and ROE, and the concept of financial leverage. Would you expect the percentage difference between ROI and ROE to be high or low for a firm that has a high degree of financial leverage?

Activity measures:

13. Calculate the accounts receivable turnover and the number of days’ sales in accounts receivable (based on a 365-day year) for the year ended __________, 20__.
14. Based on your analysis above, do you believe that the company is doing an effective job at managing accounts receivable? What would you estimate the industry averages to be for accounts receivable turnover and the number of days’ sales in accounts receivable? Explain.
15. Calculate the inventory turnover and the number of days’ sales in inventory (based on a 365-day year) for the year ended _________, 20__.
16. Based on your analysis above, to what extent does the company need to be concerned about its inventory management policies? In assessing inventory management policies, would you be more interested in knowing current ratio or acid-test ratio information? Explain.