Math & Engineering

Student Signature: Olena Pogonina ******************************************* Instructor's Grade on Assignment: Instructor's Comments

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Student Signature: Olena Pogonina ******************************************* Instructor's Grade on Assignment: Instructor's Comments
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    Nova Southeastern University Wayne Huizenga Graduate School of Business & Entrepreneurship Assignment for Course: FIN 5008  –   Business Finance Submitted to: Dr. Albert A. Williams Submitted by: Olena Pogonina Fort Lauderdale, Florida (954)-224-6510 Date of Submission: 05/25/2019 Title of Assignment: Individual Summary Week 3 CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledge and disclosed in the paper. I have also cited any sources from which I used data, ideas of words, whether quoted directly or  paraphrased. I also certify that this paper was prepared by me specifically for this course. Student Signature: Olena Pogonina  ******************************************* Instructor’ s Grade on Assignment: Instructor’s Comments:    Chapter 3 delves into understanding of power and potential one can receive from financial statements. The ability to utilize financial data can help anyone make significant improvements to the area that you want your finances to flow. To ensure consistency and uniformity of financial data and operations of companies, ones should use standardization in their financial  practices. That is why we use common-size balance sheet and income statement which represent all items in percentage terms. Financial ratios are ways of comparing and investigating relationship between different pieces of financial information. There are certain key points to keep in mind working with ratios: how it is calculated and measured; what it measures and why it interests us; how these measures can be improved. I will discuss briefly each category of financial ratios and its application to real financial world. 1.   Liquidity Ratios measure company’s ability to cover   its own expenses. These ratios focus on current assets and liabilities and based on balance sheet items. Current ratio is a reflection of financial strength and shows solvency of business. Quick ratio looks into company’s most liquid assets  (cash, stocks and bonds, accounts receivable) except inventory. This types of ratios are interesting to short  –  term lenders and bank loaners. 2.   Leverage ratios measure the stability of a company and its ability to repay debt. This type of ratios gives a strong indication of financial health and viab ility of one’s business. Total debt ratio shows all debts to all creditors. Times interest earned ratio measures how well a company has its interest obligations covered. Cash coverage ratio is measured by adding depreciation to earnings before interest and taxes, since it is part of cash flow available to meet financial obligations. 3.   Asset utilization ratio is a tool identifying whether company is wasting its assets or  putting them to good use. Total asset turnover indicates how much company is generating in revenues for every dollar invested in total assets. Inventory turnover and days’ sales tell us how efficiently we use our inventory and how long does it take for it to be renewed. Receivables turnover and days’ sales in receivables look at how fast company collects money on product sold.  4.   Profitability ratios are mostly widely used since its focus is on net income which identifies efficiency of assets and success of business operations. Profit margin represents how much percentage of sales has turned into profit. Return on assets is an indicator of how profitable a company relatively to its total assets. It mainly interests investors and analysts since it shows how efficient management at using company’s assets to generate earnings. Return on equity is considered a measure of how effectively management is using a company’s assets to create profit for shareholders.  5.   Market value ratios are used to evaluate the current share price of a publicly-held stock. These ratios are employed by current and potential investors to determine whether a company’ s shares are over or under priced. The most common market value ratios are  price-earnings, price-sales, market to book and enterprise value. These ratios are closely watched by perspective investors and investor relations officers. DuPont Analysis is an important tool of breaking apart ROE to gain a better understanding of where movements in ROE are coming from. Even though ROE is closely watched by those who are interested in investing into a company, it can be misleading, as it is vulnerable to measures that increase its value. DuPont analysis helps significantly broaden understanding of company’s ROE. Another important concept that comes useful in determining future of business is growth rate. Growth can be financed from internal or external sources. Internal growth is the highest level of growth achievable for a business without obtaining outside financing. The sustainable growth rate is the maximum rate of growth a company can sustain without having to finance growth with additional equity or debt. At some point, most companies require an in-depth look at their financial structure. Whether one takes upon expansion project, experience low cash reserve or need to adjust custome r’s credit terms, the answer could be found in looking closer at financial ratios. This information is widely used by internal users (managers, employees, representatives of multiple divisions within a company) and external users (creditors, investors, bankers, loan officers, etc). Ratios will vary from industry to industry and over time depending on what benchmark we choose. This information applies to me on a personal level since it broadens my knowledge of personal finance management. I totally look differently now at concept of debt and how it could be  viewed as a positive thing as long as you know how to manage it and control time and resources you put into it.
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