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Financial analysis in case studies - Essay Example

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Finance department forms the large section of any business entity. The financial section includes the income statement, cash flow statements and balance sheet. For large companies,…

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Subject: Management
Type: Essay
Level: Masters
Pages: 1 (250 words)
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Author: nwisozk

Extract of sample "Financial analysis in case studies"

FINANCIAL ANALYSIS Effective financial ment analysis is core to effective business management decision making. Finance department forms the large section of any business entity. The financial section includes the income statement, cash flow statements and balance sheet. For large companies, these financial statements will contain several years of history together with projections. The balance sheet and the income statement may good on the paper, but without proper business strategies the business might quickly go under.

Financial ratios give the detailed position of the company at any given point. Most investors will analyze the financial ratios of the company before making a decision whether to invest or not in the company. To demonstrate this point, the following financial ratios for Inbev, Heineken and Molson will be taken into consideration. 1) Return on asset (ROA)The ROA shows the profitability of a firm’s assets in generating revenue. ROA = Annual Net IncomeAverage Total Assets2009Inbev =4,613.0/112,525.0=0.40995Heineken =1288/11442=0.

11256Molson=720.40/1707.90=0.421802010Inbev = 4,026.0/ 114,342.0=0.0352Heineken =1384/11354=0.1219Molson= 707.70/ 2,220.90=0.31872011Inbev = 5,855.0/ 112,427.0=0.0521Heineken =1476/11511=0.128Molson= 676.30/ 2,118.00=0.31932) Return on sales= Net income (before interest and tax)/salesReturn on sales is a financial analysis that measures the firm’s operational efficiency2009Inbev =9,936.0/36,758.0=27.03%Heineken =1,428/14,701.0=9.7%Molson=717.50/4,426.50=16.21%2010Inbev = 11,016.0/36,297.0=30.

35%Heineken =1,967/16,133.0=12.192%Molson= 809.00/4,703.10=17.201%2011Inbev = 12,492.0/39,046.0=31.10%Heineken =2089/17,123.0=12.19%Molson= 774.20/5,169.90=14.98%3) Net working Capital ratio Net working capital ratio measures a companys efficiency and its short-term financial health. 2009Inbev =10853-14254=-3401Heineken =4153-5356=-1203Molson=1,707.90-1,580.90=1272010Inbev = 12597-15720=-3123Heineken =4318-5623=-1305Molson= 2220.90-1,333.90=8872011Inbev = 12323-19644=-7321Heineken =4708-6159=-1451Molson= 2,118.00-1,277.20=840.84) DEBT-TO-EQUITY RATIO The debt-to-equity measures the relative proportion of shareholder’s equity and debt used to finance a company’s assets.

Debt-to-equity ratio=total debt / total equity2009Inbev =47005/33171=1.417Heineken =7312/5647=1.3Molson= 1713/7079=0.2422010Inbev = 41886/38799=1.08Heineken =8031/10220=0.786Molson= 1960.70/7798.80=0.2512011Inbev = 34478/0.84Heineken =8166/10092=0.809Molson=1961.80/7647.90=0.2575) ASSET COVERAGE RATIOAsset coverage ratio determines a companys ability to cover debt obligations with its assets after all liabilities have been satisfied. It is calculated as followsAsset Coverage Ratio = ((Total Assets – Intangible Assets) – (Current Liabilities – Short-term Debt)) / Total Debt Obligations2009Inbev = ((112427-25165)-(14254-28)/47005=1.

55Heineken = (20180-1702)-(5356-0.00))/7312=1.795Molson= ((12021-4534.70)-(1,580.90-0.00))/ 47005=0.1262010Inbev = ((114342-23359)-(15720-1016))/41886=1.821Heineken =(26662-3577)-(5623-0.00))/8031=2.174Molson= (12697-6455.10)-(1,333.90-0.00))/ 41886=0.1182011Inbev = ((112525-23818)-(19644-2295))/34478=2.07Heineken = ((27127-3305)-(6159-0.00))/8166=2.163Molson= ((12423-4586)-(1,277.20-0.00))/ 1961.80=3.3447,005.041,886.034,478.0Work citedBragg, Steven M. Financial Analysis: A Controllers Guide.

Hoboken, N.J: Wiley, 2013. Internet resource.

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