CaseStudy #1

INTRODUCTION

The major financial statements of a company are the balance sheet, income statement and cash flow

statement (statement of sources and applications of funds). These statements present an overview of

the financial position of a firm to both the stakeholders and the management of the firm. But unless the

information provided by these statements is analyzed and interpreted systematically, the true financial

position of the firm cannot be understood. The analysis of financial statements plays an important role

in determining the financial strengths and weaknesses of a company relative to that of other companies

in the same industry. The analysis also reveals whether the company’s financial position has been

improving or deteriorating over time.

FINANCIAL RATIO ANALYSIS

Financial ratio analysis involves the calculation and comparison of ratios which are derived from the

information given in the company’s financial statements. The historical trends of these ratios can be

used to make inferences about a company’s financial condition, its operations and its investment

attractiveness.

Financial ratio analysis groups the ratios into categories that tell us about the different facets of a

company’s financial state of affairs. Some of the categories of ratios are described below:

• Liquidity Ratios give a picture of a company’s short-term financial situation or solvency.

• Operational/Turnover Ratios show how efficient a company’s operations and how well it is

using its assets.

• Leverage/Capital Structure Ratios show the quantum of debt in a company’s capital structure.

• Profitability Ratios use margin analysis and show the return on sales and capital employed.

• Valuation Ratios show the performance of a company in the capital market.

REQUIREMENTS

1. Pick a company in an industry affected by the current pandemic. (airlines, hotels, etc.)

2. Complete a financial analysis using at least 2 ratios from the groups above.

a. Calculate those ratios using Excel

3. Given the data presented in the financial ratio analysis, write a minimum of two pages in APA

format on how you feel the company will get through the current financial climate. For example,

if the company has strong liquidity, they may fare well. Use the ratios to support your case. You

can also reference the Great Recession as a basis for your case as well.

4. Basic categories:

a. Introduction: Brief company history and a statement of the current market condition

and your position on whether that company will make it through the pandemic.

b. Analysis: This is where you will prove your position and use the ratios you calculated in

Excel to support your case.

c. Conclusion: Restate your position

5. You are being mainly graded based on the analysis so please do not write a page and a half for

the introduction. A half to three quarters of a page is more than reasonable.

6. Please do not define the ratios.

References:

https://www.icmrindia.org/free%20resources/casestudies/finance1.htm