# Financial Formulas Assessment

Financial Formulas Assessment

Overview

In preparation for your report in Project Two, you will need to calculate the financial ratios needed to determine your chosen business’s current financial health. Once you’ve calculated these ratios, the results will be used to analyze the business’s current financial position and help them make decisions about how to improve or maintain their financial health. Pay particular attention to working capital management. If liquidity is an issue, consider how the company will meet its short-term obligations.

Prompt

Using the Project Two Financial Formulas spreadsheet and the balance sheet, income statement, and cash flow statement from Mergent Online for your chosen company (This company will be Tesla), calculate the financial ratios for the most recent fiscal quarter. Then, compare those ratios with the same ratios for the same fiscal quarter from one year prior in Mergent Online, and analyze your results.

Specifically, you must address the following rubric criteria:

Financial Calculations: Calculate accurate financial ratios to assess the business’s current financial health. Specifically, calculate the following ratios:

Working capital

Current ratio

Debt ratio

Earnings per share

Price/earnings ratio

Total asset turnover ratio

Financial leverage

Net profit margin

Return on assets

Return on equity

Fiscal Quarter Comparison: Using Mergent Online, summarize the differences between the results from your financial calculations of the most recent fiscal quarter and the results of the same financial calculations of the same fiscal quarter from a year before for your chosen business.

For example, if the most recent fiscal quarter available is the 3rd quarter in 2020, then you will compare those results to the same financial calculations from the 3rd quarter in 2019.

Comparison Analysis: Explain what the results of your calculations and your comparison indicate about the business’s current financial health, providing examples to support your explanation. You might consider the following questions:

Do the results indicate the business is financially healthy or financially unhealthy? Which results indicate this?

What might be the cause(s) of the business’s financial success or failure?

Is more information needed to determine the business’s financial health? If so, which pieces of information might still be needed?

Short-Term Financing: Explain how potential short-term financing sources could help the business raise needed funds to improve its financial health. Base your response on the business’s current financial information.

Guidelines for Submission

Your submission should be a 2 to 3 page Word document with 12-point Times New Roman font, double spacing, and one-inch margins. You must also submit the Project Two Financial Formulas spreadsheet (which you will fill in completely as part of your Project Two submission) and the Excel files for your downloaded balance sheet, income statement, and cash flow statement from Mergent Online.

RATIOS

ACCOUNTING & FINANCIAL RATIOS

CURRENT RATIO (Current Assets / Current Liabilities) TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets)

Current Assets Total Revenue

Current Liabilities ERROR:#DIV/0! Total Assets ERROR:#DIV/0!

WORKING CAPITAL (Current Assets – Current Liabilities)

: *Note to students: Be mindful of the scale being used in Mergent Online when filling this out. If a number is written as 12.53, that does not mean the total for that item is $12.53. There could be numerous zeros written after it, depending on the scale labeled above. In this example, 12.53 is actually $12,530,000. (To delete this comment, right-click on the “WORKING CAPITAL” box, then select Delete Comment from the drop-down menu.) FINANCIAL LEVERAGE (Total Assets / Shareholder’s Equity)

Current Assets Total Assets

Current Liabilities 0 Shareholder’s Equity ERROR:#DIV/0!

DEBT RATIO (Total Debt / Total Assets) NET PROFIT MARGIN (Net Income / Total Revenue)

Total Debt Net Income

Total Assets ERROR:#DIV/0! Total Revenue ERROR:#DIV/0!

EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding) RETURN ON ASSETS (Net Income / Total Assets)

Net Income Net Income

Shares Outstanding ERROR:#DIV/0! Total Assets ERROR:#DIV/0!

PRICE EARNINGS RATIO (Share Price (end of quarter / EPS) RETURN ON EQUITY (Net Income – Preferred Dividends / Shareholder’s Equity)

Stock Price NI – Pref. Div.

EPS ERROR:#DIV/0! Shareholder’s Equity ERROR:#DIV/0!

Monthly

Time Value of Money – Monthly Compounding

Rate of Return Year 1

Initial Investment Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 2

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 3

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 4

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 5

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 6

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 7

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 8

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 9

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 10

Month 1 2 3 4 5 6 7 8 9 10 11 12

Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Annual

Time Value of Money – Annual Compounding

Rate of Return Year 1 2 3 4 5 6 7 8 9 10

Initial Investment Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Investment Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

PV

Time Value of Money – Present Value Annuity

Number of Years

Rate of Return $0.00

Payment

FV

Time Value of Money – Future Value Annuity

Number of Years

Rate of Return $0.00

Payment

PV – Lump Sum

Time Value of Money – Present Value of Lump Sum

Rate

Years $0.00

Initial Investment

FV – Lump Sum

Time Value of Money – Future Value of Lump Sum

Rate

Years $0.00

Initial Investment

NPV

Net Present Value (NPV) Calculator

Building

Initial Investment Year 1 2 3 4 5 6 7 8 9 10

Annual Cash Inflows Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Discount Rate NPV = $0 Year 11 12 13 14 15 16 17 18 19 20

Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Salvage Value

Equipment

Initial Investment Year 1 2 3 4 5 6 7 8 9 10

Annual Cash Inflows Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Discount Rate NPV = $0 Year 11 12 13 14 15 16 17 18 19 20

Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Salvage Value

Bonds

Initial Investment

Annual Cash Inflows

Discount Rate NPV = $0 Year 1 2 3 4 5 6 7 8 9 10

Number of Years Cash Flows $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Principal Returned

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