Ratio analysis is a method used to analyze the financial reports of a company and interpret trends in the company’s performance. As a nonaccounting manager, you use numerous ratios to analyze your company’s performance year-by-year and benchmark the performance to industry averages, to an individual competitor’s performance, or against a predetermined target.
For this assignment, read “Case study question 7.2: General Machinery Ltd” on page 168 in chapter 7 of our textbook, Accounting for Managers: Interpreting Accounting Information for Decision Making, 5th. Using the data from the case study, repond to the tasks below.
Consider the following scenario for this assignment: You are an external investor who is considering General Machinery as one of the potential companies for investment. Respond to the following in your initial discussion post:
- Discuss the major issues facing the company.
- Recommend what actions the company should take to improve its overall performance, addressing each of profitability, liquidity, gearing, activity, and shareholder return measures.
- In what way does the Statement of Cash Flows help you to interpret the ratios and financial performance of the company?
- What information does ratio analysis provide for meeting the requirements of the case questions?
- Which ratios are the most important, and which ones are of limited value? Justify your choices for the scenario.
- Why do you need to compare:
- The current year ratios with the prior year ratios?
- The ratios of competitors in the same industry or some other benchmark?
- Other than the computations used in ratio analysis, what else is necessary to properly analyze a company for investment?
By the due date assigned, post your response to the Discussion Area. Through the end of the module, read and respond to at least two other classmates’ posts on at least two different days of the week.
Write your initial response in 300–500 words. Your response should be thorough and address all components of the discussion question in detail. Include citations of all sources, where needed, according to the APA style, and demonstrate accurate spelling, grammar, and punctuation.
Apply the following when responding to your peers:
- Read your peers’ answers.
- Provide substantive comments to at least 2 peers’ posts on 2 different days by
- building on the remarks or questions of others; or
- sharing practical examples of key concepts from your professional or personal experiences
- assist the class in providing excellent answers to each of the posted questions.
- Respond to feedback on your posting and provide feedback to other students on their ideas.
- Note: more posts on more days each week will support your discussion grade.
- Make sure your writing
- is clear, concise, and organized;
- demonstrates ethical scholarship in accurate representation and attribution of sources; and
- displays accurate spelling, grammar, and punctuation.