1. Ratio analysis provides another set of patterns to evaluate before
Ratio analysis provides another set of patterns to evaluate before deciding to buy or sell a
company’s stock. Ratios reveal more than just the past performance; ratios reveal how
effectively the company converts product sales into shareholder returns. Ratios provide a
gauge for comparison across time and across the industry (competitors), while removing
the impact of size differences. Would you rather invest in Company A, with $1.0 million in
earnings, or Company B, with $10.0 million in earnings? It’s hard to say. However, if
Company A earns a ROA of 25%, while Company B earns a ROA of 2%, the decision becomes
clear.Liquidity ratios provide clues to how effectively the company manages its cash
collection cycle. Asset turnover ratios reveal how efficiently the company uses its assets to
generate profits. Debt management ratios reveal how leveraged a company is, which
provides an indication of future risk. Taken together, a company’s ratios and its ratios
compared to the industry competitors provide important insight to the investment strength
of the company’s stock. In this assignment, you will review the trend in your chosen
company’s financial ratios over the past 3 years and compare your chosen company’s ratios
to the average ratios from top competitors in the industry.Prepare:Prior to beginning work
on this assignment,Make sure you have completed the Company Ratios: Appendix C and
Industry Competitor Ratios: Appendix D assignments. It is recommended that you keep
those two PDFs open or printed when completing this assignment.Write:In your paper,
address the following four parts in a Word document:Part 1: (three to five
paragraphs)Summarize the trends in your company’s ratio performance over the 3 most
recent years. Be sure to address the following ratios included in Appendix C:Profitability
ratios: ROA, ROE, return on investment (ROI).Liquidity ratios: quick ratio, current ratio.Debt
management ratios: long-term debt to equity, total debt to equity, interest coverage
ratio.Asset management ratios: total asset turnover, receivables turnover, inventory
turnover, and accounts payable turnover.Per share: book value per share.Part 2: (two
paragraphs)Interpret whether the trend for each ratio (listed in Part 1) is an improvement
or a decline in performance for the company.Create a table that lists each ratio as either a
strength or a weakness in the most current year, based on its trend and your
interpretation.Determine the overall financial strength of the company based on the ratios
identified as either strengths or weaknesses.Consider all of the ratios discussed so far. Is the
company’s strength the fact that the debt management ratios are improving? Or is it that the
liquidity ratios are increasing? Is the company’s weakness that the turnover ratios are
declining? Or is the company’s weakness that debt management ratios are

2. weakening?Categorize the company’s overall ratio performance as either strong, neutral, or
weak, based on your determination from the ratios.Part 3: (one to two paragraphs)Compare
your chosen company’s ratio performance to the industry competitor ratios in the most
recent year based on Appendix D. Be sure to address the following ratios included on
Appendix D:Profitability ratios: ROA, ROE, gross margin, and net margin.Liquidity ratios:
quick ratio and current ratio.Debt management ratios: long-term debt to equity, total debt
to equity, and interest coverage ratio.Asset management ratios: asset turnover and
inventory turnover.Create a table that lists each ratio as either higher or lower than the
average ratio for the competitors in the industry.Part 4: (one paragraph)Categorize the
company’s overall financial performance as either better than average, average, or worse
than average compared to the industry based on the ratios.Interpret which ratios are the
most important and explain your reasoning.Justify your conclusion based on the table you
created, your interpretation of which ratios are the most important, and the company’s
overall ratio performance compared to the industry competitors.The Section 2: Financial
Ratio Analysis paperMust be two to three double-spaced pages in length including any
tables or calculations (but not including title and references pages) and formatted according
to APA Style (Links to an external site.) as outlined in the Writing Center’s APA Formatting
for Microsoft Word (Links to an external site.)Must include a separate title page with the
following:Title of paper in bold fontSpace should be between title and the rest of the
information on the title page.Student’s nameName of institution (The University of Arizona
Global Campus)Course name and numberInstructor’s nameDue dateMust utilize academic
voice. See the Academic Voice (Links to an external site.) resource for additional
guidance.Must include a separate references page that is formatted according to APA Style
as outlined in the Writing Center. See the APA: Formatting YourSince this is Section 2 of the
Week 5 final project, there is no need for an introduction paragraph.