Fallow the instrcsion - Case Study Example

Financial Performance of Seward Inc The U.S SEC outlines key financial ments that every business should have. The balance sheet reflects a business or company’s assets, liabilities as well as equity of shareholders. Assets are valuables owned by the company; liabilities are the worth of all that the company. Essentially, the company’s equity should balance its liabilities and shareholders’ equity (SEC 2015). A company’s income statement shows revenues earned by a company over a stated period.

Besides, it shows all the costs and expenses incurred over the period. It depicts the EPS for shareholders. Profitability, Efficiency, Liquidity and Leverage of Seward IncBased on the results of the ratio analysis, Seward Inc. is a weak player in the international trade finance market due to the loss made from its trading activities. After having realized net sales of $ 4, 500, Seward Inc. made a net income of $ 315 despite the $ 1,700 gross profit realized before deducting corresponding expenses.

Unfortunately, net income is prone to criticism from managers as it increases from earnings gained from discontinued operations. Investors ought to focus on measures such as cash flows, sales, or profits before considering interests and taxes. Efficiency in a company operation prevails through total asset turnover, fixed asset turnover, and equity turnover.Total Asset Turnover is a ratio used to measure the ability of a business to generate sales given its sales in total assets. The rate tends to be lower in capital-intensive businesses compared to non-capital-intensive businesses.

A firm is said to be efficient if it meets a total asset turnover of 1 and above. Having a Total asset turnover of 1.6, Seward Inc is a profitable company. On the other hand, liquidity is the ability of a business to cater adequately for its financial obligations upon the occurrence. Current ratio is the best liquidity determinant followed by acid ratio. The industry recommends a current ratio of 1 and above. The rate increases with the financial position of the company. Seward Inc. is in sound financial position as the current ratio of three indicates that it can pay its short-term obligations.

Damodaran (2012) acknowledges operating leverage as a change indicator in operating income caused by a change in sale. Leverage ratio is any rate used in calculating the company financial leverage to know how it can meet its financial obligations. An operating profit margin 8.0 percent indicates better performance of the firm.Comparison of the Ratio Results Analysis and the Industry CommentSeward Inc. is capable of meeting its short-time obligations due to its current ratio of 3.0 and Acid 1.5. The rates are above the recommended level of 1.

The company, as a result, operates within the industry recommended guidelines. However, the managers fail to generate attractive operating profit since the total expenses exceed the total revenue gained from the sales made. The firm mainly finances its operation through the sale of assets despite the fact that it realized a net income. The industry recommends, and financial analysts consider return on equity ratios from 15-20% range to represent attractive quality investment levels. An 11.0 percent return on investment indicates unstandardized firm’s performance.

ReferencesDamodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Hoboken, N.J: WileyU.S. Security Exchange Commission (SEC). (2015). Beginners Guide to Financial Statements. Retrieved February 9, 2015 from http://www.sec.gov/investor/pubs/begfinstmtguide.htm