2 Ratio Analysis Respond To At Least 2 Classmate
My course is Accounting for Healthcare.
The discussion is
1/ An Even Closer Look at Financial Statements- Chapter 12-13) Assume for our discussion that you were interest in investing in a particular organization’s stock and you were given access to their end of the year financial statements (Auditor’s opinion letter, Balance Sheet, Operating Statement, Statement of Changes in Net Assets, Statement of Cash Flows and footnotes) prepared by their independent auditors. What would be the first five areas that you would review and why?
2/(Ratio Analysis – How Do We Compare to other Health Care Organizations- Chapter 14) Briefly discuss the purpose and interpretation of the four groupings of ratios used in financial analysis (hint: liquidity, asset turnover, profitability, solvency)
My classmate discussion one is.
1. If I were interested in investing in a particular organization’s stock and I was given access to their end of the year financial statements, the first five areas that I would review would be the Auditor’s opinion letter,Statement of changes, Net Assets, Statement of Cash Flows and the footnotes. The reason I chose those 5 in that specific order is because they all have significance in notifying the organization where they are standing financially and where they need to improve. Due to obtaining information as an outsider, this will tell me exactly the organization’s strengths and weaknesses as to how critically they need to make changes and implementing them, considering their financial flexibility and other investments within the organization. Most importantly the Auditor’s opinion letter would entail on information that is not bias, and is the most accurate evaluation based off of a company’s financial statements and practices, all is backed up by the GAAP all in one document summing up what all other statements contain.
2. The four groups of ratios used in financial analysis is liquidity, solvency, profitability and asset turnover (efficiency). Each has their own way of being utilized and analyzed within accounting. In conjunction all four ratios define the relationship between the financial statement items as well as historical information. Management can utilize the ratios to identify internal strengths and their weaknesses by calculating the estimate of future financial performance. Investors can also use ratios for comparing when looking into organizations to invest in within the same industry. Ratios are exactly what it seems providing meaningful information through numbers, comparing them to historical data and industry averages.
“Basu, C. (2018, June 27). Four Basic Types of Financial Ratios Used to Measure a Company’s Performance. Retrieved from https://smallbusiness.chron.com/four-basic-types-financial-ratios-used-measure-companys-performance-25299.html”
My classmate discussion 2 is.
1- If I had to choose the basic areas for a review, first I will check Auditors opinion letter to see either the organization is qualified or not. If it is qualified, that means c is not in a good position. So, it should be unqualified as it means that the organization is in a good state. Then I will check the statement of cash flow, and it will help me know if the organization’s good enough to invest in or not as it shows the inflows and outflows. After that, I will check the operating system as it shows the profit and loss of an organization. Then I will step up to the balance sheet to get an idea of the current statement of the organization’s assets, charges, and existing of a business. The last thing that I will check will be the statement of changes in Net Assets. It will help me know the estimated correspondent of the net profit digits on an income statement which is used by nonprofit entities.
2-When it comes to financial analysis, Liquidity of ratios tells us that how well a company will deal its financial responsibilities at certain time. It will help in measuring the organization’s ability to pay its short period debts. The main purpose is to calculate the estimated revenue. Liquidity ratios can be calculated by multiplying current assets and current liabilities and keeping it equal to the overall current ratio. The purpose of asset turnover tells us the exact ratio of asset of an organization which can further help in knowing how capable a company is in using its assets for creating sales. An organization is considered competent if it can produce profits. It is important for every organization to evaluate and advance its Asset turnover ratio. Several variants exist which depends on the type of assets which are considered for ratio calculation. Asset turnover ratio expresses a contrast that exist between the net sales and the usual assets which company keeps. Profitability of ratios is most important for investors. Every organization is anxious about its profitability as it helps in determining an organization’s end result which the investors will take away. Profitability ratio is always relative to cost and expenses and can be analyzed by comparing it to the assets to see how efficient a company is in organizing its assets to produce sales gaining profits. A solvency ratio shows how much an organization is depending on its creditors. The solvency ratio helps us in calculating the ratio of assets of an organization that have been funded with either a short-term or a long-term debt. Higher the ratio, greater will be the degree of control and more will be the monetary risk.