- Download and read “How to Read a Financial Report” from http://lgdata.s3-website-us-east-1.amazonaws.com/docs/552/122696/Merrill_Lynch.pdf .
- Before composing your written summary response, conduct a ratio analysis and complete the one-page Excel spreadsheet to be included as an appendix with your initial discussion post:
- Using Ratio Analysis to Interpret Company Financial Reports:
- Locate comparative financial statements: Locate the most recent comparative annual financial reports for your company if publicly traded (or another publicly traded company). Note that you will need the financial statements for the two most recent consecutive years (fiscal year or calendar year). You can find annual reports for publicly traded companies at the U.S. Securities and Exchange Commission website: http://www.sec.gov/edgar.shtml .
- Provide the direct URL address(es) as reference(s) for the financial statements cited in the written discussion post.
- Download the Excel worksheet Financial Ratio Analysis.xlsx.
- Attachment to Initial Discussion Post – Financial Ratio Analysis Worksheet: Complete the Excel financial analysis worksheet template using the financial information from the company’s Balance Sheets, Income Statements, Statements of Retained Earnings, and Cash Flow Statements for the two most recent years.
- Note that the F/U column represents the terms “favorable” and “unfavorable.” These terms signify the change of a ratio from one year to the next. Although organization trends are considered to be more valid when using information over a period of three to five years, reviewing ratio changes from one year to the next can still provide key information and possibly point out areas for further inquiry. Also, ratios are used to compare one company’s performance to another’s, or even to an industry’s performance.
- To identify the change differential from the prior year to current year in the ratios as F/U (i.e., Favorable or Unfavorable), use the following key:
- Current ratio
F ~ up U ~ down - Quick ratio
F ~ up U ~ down - Receivable turnover
F ~ up U ~ down - Days’ sales uncollected
F ~ up F ~ down - Inventory turnover
F ~ up U ~ down - Days’ inventory on hand
U ~ up F ~ down - Payables turnover
F ~ up U ~ down - Days’ payable
F ~ up U ~ down - Profit margin
F ~ up U ~ down - Asset turnover
F ~ up U ~ down - Return on assets
F ~ up U ~ down - Return on equity
F ~ up U ~ down - Debt to equity
U ~ up F ~ down - Interest coverage ratio
F ~ up U ~ down - Cash flow yield
F ~ up U ~ down - Cash flows to sales
F ~ up U ~ down - Cash flows to assets
F ~ up U ~ down - Free cash flow
F ~ up U ~ down - Price/earnings ratio
F ~ up U ~ down - Dividends yield
F ~ up U ~ down - HR’s Need to Read: In one or two sentences, explain why it is important for HR professionals to be able to read a financial report and how they might use the information for HR purposes.
- Interpret the Financial Ratio Analysis Findings:
- Interpret Ratio Groups: Interpret the findings for each group of ratios: liquidity ratios, profitability ratios, long-term solvency ratios, cash flow adequacy ratios, and market strength ratios.
- Interpret the Organization’s Financial Standing: Interpret the findings of the ratio analysis as a whole. In other words, discuss the overall meaning and implications when considering the individual interpretations in Step 4.a.
- Implications for HR: Based on the interpretations, what are the implications of your findings for HR?
- Provide a detailed post that demonstrates clear, insightful critical thinking. Your initial response should be 200-300 words long and include two academic resources that are properly cited. Attach the completed Excel financial analysis worksheet to your initial discussion post as either a Word file or an Excel file.
- Post your initial discussion by the end of the fourth day of the workshop.
- Also conduct a critical analysis of postings by two of your classmates by the end of the workshop.
- Your discussion response should discuss your classmate’s posting and be written as if you were reviewing his or her posting in an academic journal. Your discussion response should therefore answer the following questions as applicable:
- Was your classmate’s reasoning articulate and logical? Were the facts correct?
- Was the interpretation your classmate provided reasonable and consistent with experts in the field? Did your classmate defend the choices effectively?
The focus for your critical analysis is not whether or not you agree with your classmate, but how well his or her position was presented.
- Each response should be 200-300 words long and cite two academic sources. Strive to make your discussion responses evidence-based and evidence-informed for the cause-and-effect purpose of iron sharpening iron.
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