inside the instruction box - uploaded file (Financial Statement Analysis)
SEU Discussion Board Rubric Meets Expectation Approaches Expectation Below Expectation Limited Evidence No Evidence Content, Research, and Analysis 2 Points 1.5 Points 1 Point .5 Points 0 Points Content Meets Expectation - Demonstrates excellent knowledge of concepts, skills, and theories relevant to topic. Approaches Expectation - Demonstrates fair knowledge of concepts, skills, and theories. Below Expectation - Demonstrates significantly flawed knowledge of concepts, skills, and theories. Limited Evidence - Demonstrates poor or absent knowledge of concepts, skills, and theories. No Evidence - Did not participate. 2 Points 1.5 Points 1 Point .5 Points 0 Points Support Meets Expectation - Statements are well supported; posts extend discussion. Approaches Expectation - Statements are partially supported; posts may extend discussion. Below Expectation - Support is deficient; posts do not extend discussion. Limited Evidence - Statements are not supported No Evidence - Did not participate. 2 Points 1.5 Points 1 Point .5 Points 0 Points Writing Quality Meets Expectation - Writing is well organized, clear, concise, and focused; no errors. Approaches Expectation - Some significant but not major errors or omissions in writing organization, focus, and clarity. Below Expectation - Numerous significant errors or omissions in writing organization, focus, and clarity. Limited Evidence - Numerous errors or omissions—at least some major— in writing organization, focus, and clarity. No Evidence - Did not participate. 2 Points 1.5 Points 1 Point .5 Points 0 Points Timeliness Meets Expectation - Initial post made before deadline. Approaches Expectation - Initial post made 1 day late. Below Expectation - Initial post 2 days late. Limited Evidence - Initial post 3 days late. No Evidence - Did not participate. 2 Points 1.5 Points 1 Point .5 Points 0 Points Quantity Meets Expectation - Initial post and two other posts of substance. Approaches Expectation - Initial post and one other post of substance. Below Expectation - Initial post only. Limited Evidence - One post of substance to colleagues. No Evidence - Did not participate. Points Possible: 10
[/et_pb_text][et_pb_text _builder_version="4.9.3" _module_preset="default" width_tablet="" width_phone="100%" width_last_edited="on|phone" max_width="100%"]
| Subject | Business | Pages | 3 | Style | APA |
|---|
Answer
Bank Providing Short Term Loans
Financial ratios are variables used to analyze the financial performance and financial position of an organization (Dowdell, Klamm & Andersen, 2020). The financial statements are prepared using historical information. Making future decisions with the information is the financial statement is therefore, possible only if there is financial analysis using financial ratios. In the case of a bank which is involved in offering short term loans, the shareholders will be interested in the following financial ratios
Liquidity Ratios
These are ratios used to establish the ability of a company to meet its short-term obligations as they fall due. short term obligations include payment of accruals, salaries, creditors, rent and other utility costs. Examples of liquidity costs include current ratios and quick ratios. According to Dowdell, Klamm and Andersen (2020), current ratios analyze the liquidity position of a company, by comparing all the current assets and current liabilities. Quick ratio on the other hand, establishes the liquidity position of a company by comparing the current assets minus inventories with the current assets. Inventories are less liquid than other current assets. Quick ratio is therefore, more accurate than current ratio. High liquidity ratios, which are more than the industrial average, shows that the company will be able to meet its short-term obligations effectively as they fall due while low liquidity ratios indicates otherwise. Low liquidity ratios would also expose the company to liquidity and bankruptcy risks.
Profitability Ratios
These are ratios that measure the effectiveness of the management as is indicated in the returns generated on sales and investment (Dowdell, Klamm & Andersen, 2020). In essence these ratios used to analyze the effectiveness of a company’s management to manage effectively, the cost of operations and the cost of production, so as to maximize profit. It is worth to note that profit maximization is one of the core objectives of the shareholders, and the main reason as to why they invest their funds. Examples of profitability ratios include; net profit margin, gross profit margin return on capital employed among others. Gross profit for example is calculated by dividing the gross profit realized by a company by the net sales (Karaömer and Özbirecikli, M. (2019). A high gross profit, will indicate that the bank’s management manages the cost of sales effectively, so as to maximize profit. Net profit on the other hand, is calculated by dividing the net profit by the net sales. A high net profit, which is higher than the industrial average, will indicate that the bank has effectively managed the cost of operations so as to maximize profit.
Gearing or Leverage Ratios
These are ratios used to establish the extent to which the operations of a company, and/or assets have been financed by the non-owner funds. Karaömer and Özbirecikli, M. (2019), asserts that, these ratios are also used to establish the ability of a company to meet its long-term obligation as they fall due. These ratios are therefore, key in measuring the financial risks of a company, and its ability to exist in the foreseeable time period, otherwise referred to as going concern. High gearing ratios which are above the industrial average will indicate that the bank is having fewer financial risks, and having while low gearing ratios will show that the company is having high financial risks. Examples of gearing ratios include; debt ratio, debt to equity ratio, times interest ratio among others. Debt ratio is calculated by dividing the long-term debt with the capital employed and multiplying the results by 100.
Debt to equity on the other hand, is calculated by dividing the long-term debt by the net worth of a company or the net assets (Dowdell, Klamm & Andersen, 2020). Finally, times interest ratio is calculated by adding the Earnings Before interest and tax, to depreciation, and dividing the results by interest charged. These among others are examples of the financial ratios that the shareholders will be interested in.
References
Dowdell, T. D., Klamm, B. K., & Andersen, M. L. (2020). Internal Controls and Financial Statement Analysis. Journal of Theoretical Accounting Research, 15(2), 34–57.
Karaömer, Y., & Özbirecikli, M. (2019). Effects of Financial Reporting Differences In Between BOBI FRS And MSUGT On Financial Statement Analysis: An Investigation on Financial Structure Ratios. Muhasebe ve Vergi Uygulamalari Dergisi (MUVU) / Journal of Accounting & Taxation Studies (JATS), 233–250.