Financial Analysis Student`s

Financial Analysis

Financial Analysis

Introduction

Financial analysis refers to a systematicprocess of examining the general performance of the firm (Elton,Gruber &amp Brown, 2010). The primary aim of the financial analysisis to assess the financial health of a corporation. Financialstatement analysis is a useful tool for evaluating the financialtrends and examination of the relationships between the variouscomponents of the financial statements. Evaluation of the financialstatement is much important to both internal and external users.Quantitative analysis / ratio analysis is the most common criteriaused in assessing the financial. The analysis involves comparing twofinancial elements to arrive at a conclusion. The analysis of thefollowing measures can be carried out with the ration analysisprofitability ratios, liquidity ratios, solvency ratios, activityratios, coverage ratios, gearing ratios, etc.

Ratioscomparison

Ratio comparison refers to the process ofcomparing the performance of the firm. The comparison may be eithervertical or horizontal comparison. Vertical ratio comparison is theuse of different ratios to compare the general performance within thesame company. For example, when evaluating the profitability of thecompany, one may either operating margin ratio or the net profitmargin ratio. On the other hand, horizontal ratios comparison refersto the comparison of the performance of different firms. Forinstance, an investor may use earnings per share ratios to assess thefinancial performance of the various firms. This type of analysis isalso known as cross-sectional analysis (Arnold, 2010). Ratiocomparisons facilitate comparison of the results with the historicalfinancial data.

Charlottesville2010 Annual Comprehensive Plan and ration analysis

Ratio analysis will be used in this report toassess the performance of the Charlottesville Company.

Liquidity ratios

These measures the capacity of the company tosettle its current requirements as they become due. The ratiosexpress the relationship between the current assets and the currentliabilities (Elton, Gruber &amp Brown, 2010). The ratios includecurrent ratio and quick ratio and they are calculated as illustratedbelow.

Current Ratio Itindicates the number of times a corporation can pay its liabilitiesfrom the current assets. The higher the ratio, the better but therecommended ratio should be 2:1 for an average performing entity. Anyfirm with ratio of below the recommended is said to be more liquid.Current ratio is calculated from the formula below

Calculatingthe current assets for Charlottesville,we have

Thisimplies that Charlottesvillecan met its current obligation almost 3.5 times from its currentassets. The ratio also reveals that the firm is financially healthyand non-liquid.

Quickratio, Thisratio is a more refined technique of measuring the ability of thefirm to settle its current obligations from the most liquid assets.In this case, inventory is always excluded because of two factors,one stock is valued at historical cost bases and this maycontradicts with the current market value of the current obligationsand two it is not easy to immediately convert inventory to cash whenthe need to settle an obligation arises. It is therefore, calculatedfrom the formula below

Charlottesville’squick ratio for the financial year 2010:

= 3.312

Therefore,the quick ratio of the firm is also high and this signifies a goodfinancial performance.

Ratios

Current ratio

3.471209393

Quick ratio

3.312112022

Net profit margin

0.430480609

Total assets turnover

1.660580027

Fixed assets turnover

21.37373539

ProfitabilityRatios

Profitability ratios compares the level ofprofit to sales and the net asset (Elton, Gruber &amp Brown, 2010).Higher ratios signify good performance and more profitable a firm is.The profitability measuring ratios include the following Grossprofit margin, Return on investment, Return on equity etc. Theseratios offers the best investment evaluation technique for theinvestors who are aiming at maximizing profit at lower risks.

Net Profit Margin:This compares the level of profit to the sales in the business(Arnold, 2010). Higher ratios indicate a more profitable firm. Forinstance, the net profit margin of Charlottesvillecan be calculated as follows

= 43.05%

Solvency ratios

These ratios evaluates the ability of thecompany to encounter its short-term and long-term obligations withoutexperiencing a cash flow problem. However, for the Charlottesville,the analysis has showed that the firm has very low solvency ratio andit had no long-term debt as at the financial year 2010. The firm’sretained earnings are enough to generate revenue and also undertakethe daily activities of the entity. However, the firm can considersourcing capital from long-term debt and issuance of stock to enhancegrowth and expansion.

Assets management ratios

These ratios compares the assets invested in bythe firm with the general performance of the corporation. Theyinclude assets turn over and the returns on investment. The assetmanagement ratios are calculated as follows

Total assets turnover underthis ratio, sales are compared with the book value of the assets toshow the effectiveness and assets utilization in generating sales.This ratio is calculated from the formula below

= 1.66

Thisindicates a ratio of 1.66 = 166% and hence, the company is capable ofgenerating more sales from its assets.

&nbspReturnon investment (ROI)

Returnon investment is a measure of profitability on the assets that thefirm has invested. It offers the best evaluation of the overallperformance of the firm.

* 100%

* 100% = 71.5%

Therefore,the firm is capable of generating high profit from its assets.

Ratiossummary

Ratios

Current ratio

3.471209393

Quick ratio

3.312112022

Net profit margin

0.430480609

Total assets turnover

1.660580027

Fixed assets turnover

21.37373539

ROI

0.714847502

Conclusion

Fromthe above analysis it is clear that Charlottesvilleis a profitable sector that every investor would like to invest in.The ratio analysis has proved that this firm is a going concern sinceits liquidity and solvency ratios are very low. Ratio analysis is animportant tool in budgeting and budgeting control and it is thereforehighly recommended for the evaluation of the HealthcareResearch and Quality agency in the budgeting process.

References

Elton,E.J., Gruber, M.J., Brown, S.J. (2010), ModernPortfolio Theory and Investment Analysis,8thInternational Student Edition, John Wiley &amp Sons,

ArnoldG. (2010). Capital Budgeting 4thEdition. Britain: Pearson Education.

LawrenceJ. &amp Chad J. (2010). Time Seriesand Forecasting. NewYork: Pearson Education.

Agency for Healthcare Research and Quality`s(AHRQ), (2015). Department of Health&amp Human Services: Justification of estimates for appropriationscommittees. Rock Ville. Web.Retrieved from http://www.ahrq.gov/cpi/about/index.html

Rabin, J. (2009).&nbspPublicbudgeting: A managerial perspective.S.l.: CRC Press

Charlottesville2010 Annual Comprehensive Plan,Retrieved on March 03 fromhttps://www.albemarle.org/upload/images/Forms_Center/Departments/Performance_Management/forms/2012%20Annual%20Financial%20Report.pdf