Vous êtes sur la page 1sur 2

Ratio Analysis Assignment

Purpose: The purpose of this assignment is to insure that the student has a basic
level of skill in strategic financial ratio analysis. A secondary purpose of
this assignment is to help familiarize the student with library sources of
industry financial standards.

Content: This assignment is to be done as one single paper. The overall paper has
an introduction, a body and a conclusion. The body is composed of the
analysis of the firm. The overall conclusion of the paper is a comparative
evaluation of the firm to its industry to determine the overall STRATEGIC
financial health of the firm

The content of each analysis is composed of three parts. First, as per the
instructions in the readings, students will calculate financial ratios for
each firm. It is not necessary to calculate every possible ratio for the firm
but you must calculate at least four ratios in each of the five major areas
(activity, liquidity, leverage, stock market, and profitability).

Next the student will determine what the industry's standards are for the
firm. These are found by consulting any of the reference books on the
subject or by constructing a market basket of competitors. You will need
to create a basket for the stock market ratios in any case. The two most
commonly used books are available on reserve in the library. You have to
ask for the appropriate year for each title. They are not on reserve for
this course specifically. These books are:

Industry Norms and Key Business Ratios (Dun & Bradstreet)

RMA Annual Statement Studies.

You will use the relevant edition (e.g., if available 2004 edition for 2004
data, 2003 edition for 2003 data) for your analyses. There are other
sources if you care to use them. In any case, you will present a table for
the firm that shows its ratios and your industry standard. It is not
necessary to repeat the table in the body of your paper. You will describe
the differences between the firm and its industry. Lastly you must
explain what being over or under the industry standard means
strategically, operationally or tactically. As an example, if a firm has
a lot more inventory than the industry standard, they may be losing
money from the costs of holding that inventory. Alternatively, if they
have too little inventory they may risk stock outs. Remember the purpose
of this paper is to develop your skills in strategic financial analysis and the
interpretation of the implications of these numbers not your library
research abilities.

Length: Although I generally do not like to answer this question but since it is sure
to be asked, it usually takes at least 12 typed, double spaced pages of
text plus the table(s) to cover the topic sufficiently for an “A”. You need a
cover sheet but do not need a binder.
Backup For further information on financial statement analysis I have put the
following books on References reserve:
Financial reporting, financial statement analysis, and valuation : a
strategic perspective by Stickney, Brown, and Wahlen, Successful Managerial
Control by Ratio Analysis by Tucker, and The Analysis of Financial
Statements by Bernstein. The Stickney et. al Financial Statement Analysis
Package found on the web page will be quite helpful.

Project Outline

I have been asked in the past for some clarification on the outline for the ratio project. There are a variety of
ways to organize the narrative. Here is a suggested (but not required) outline:

1. Introduce the paper i.e. describe what you are going to do and why, plus describe the industry standards
you used/created and the process you went through to analyze the data.

2. Start with a discussion of the first family of ratios and their general trajectory over time. Compare this to
the industry's trajectory over the same period. Only discuss individual ratios if their trajectory is different
from the family to which you have assigned them. This is what I have been referring to as the vertical
analysis.

3. Next you may wish to discuss (speculate on) how the firm got to the place it is in for the first family of
ratios. This is the retrospective analysis.

4. After you have done the retrospective analysis, you compare the family to the industry standards. This is
where you discuss whether the family or individual ratios are materially over or under the industry
standard for each year of the analysis. Again discuss individual ratios if their relative position is different
from the family to which you have assigned them. This is the "horizontal" analysis.

5. You now discuss the potential strategic, operational or tactical implications of the firm's relative position
for the family of ratios. Again discuss individual ratios if their relative position is different from the family
to which you have assigned them. This is the prospective analysis.

6. Repeat for each family of ratios.

7. Conclude the paper with the answer to the questions:

a. What is your judgment of the and likely future general financial


condition of the firm?
b. Do they have or can they get the resources to engage in new
strategic initiatives?

8. Include at least an appendix with the firm’s ratios and your standard plus any other appendices you believe
help your case. Do not add tables just for their own sake.