Case Study

These ratios will help us see how effective a company is at using their sales or assets and turning this into income.

Financial ratios play a key role in determining how a company is doing financially either for the good or the bad. Financial Ratios can be used internally or externally to determine how financially stable a company is. For this assignment we will use three common ratios to determine how financially stable and how Under Armour is over the last three years.

Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.

Krispy Kreme (KKD) has achieved spectacular growth in the last few years using an area developer model to expand geographically. This case examines the factors that have driven its growth and their sustainability in the coming two years. Students are provided with forecasts made by financial analysts at CIBC. They are then asked to identify and evaluate the assumptions underlying these earnings forecasts. Since the CIBC report does not provide a forecasted balance sheet for KKD, the case can be used to let students learn how to build a forecasted balance sheet. Finally, the case can be used to discuss potential conflicts of interest between analysts and investors that might lead

Understanding financial ratios are critical to understanding if a business is making sound financial decisions as well as helpful in identifying trends over time that can help measure the financial state of a company. Financial ratios also allow a company to run trend analysis which enables the company to see how they have been performing over time as well as allowing for short-term financial plans in order to course correct if necessary. Some of the most common financial ratios are earnings per share, liquidity ratios, debt ratios, return on assets, and return on equity ratios.

Ratios divide different financial statements into one another, they determine trends and changes in financial statement quantities and are used to standardize balance sheet and income statement numbers. (Melicher, R. W., & Norton, E. A. (2013).

This shows that the Krispy Kreme is effectively controlling its costs of sales since they are growing slower than the growth in revenues. The trend percents for General and Administrative expenses however exceed those of revenues in 2002, but this has changed in 2003. In both years the trend percents for income tax are noticeable higher that that for revenue, but the bottom line trend percents for net income is well above those for revenues which is a positive sign.

Analyst, investors, and managers use complied information from several financial statements to compare the relative weaknesses and strengths of organizations. The use of ratios assist in linking the balance sheet, cash flow statement, and income statement to perform quantitative analysis. The ratios used by an organization differ dependent on the type of products or services offered. Choosing the correct ratio is essential in planning because certain ratios will assist in achieving the organization’s mission while others have no validity(1). Goals of an organization require effective financial management and effective planning. Ratios are tools used by organizations to discover trends and provide indicators that will measure

Aerts and Walton (2013) expressed ratio analysis as connection between two elements of financial statements. According to them, ratios analysis allows to compare the incomparable elements in different companies. In other words, we may say that comparing profit on its own between two companies would not give a reliable conclusion on organisations’ profitability. If would simply ignore profit relationship with other financial elements like cost of goods, which itself affects the proportion of profit. This is where ratio analysis becomes a useful instrument. It allows us to draw the link between two different sales figures and two different cost of goods figures and eventually makes results comparable between two organisations. Lasher (2014) added that ratios are only valuable as a tool when they are compared with the ratios of other companies. To make investment decisions easier, we will compare industry averages later in the report.

Financial ratios provide a quickly and relatively way of assessing financial situation of an organisation. Ratios could be very helpful when comparing the financial health of different business, and it describes the relationship between different items in financial statement (Elliott & Elliott, 2008). By calculating a relatively small number of ratios, it will build up a good picture of the position and the performance of an organisation. Ration analysis includes five main areas, which are including profitability, efficiency, liquidity, financial gearing and investment (Atrill & Mclaney, 2006).

Financial ratios are extremely important to any business. The ratios help you address issues in performance, profitability, efficiency, and solvency. These ratios can be compared to other ratios of businesses in the same industry. This can be a great indication of how good or bad your business is doing compared to competitors and the Industry.

Financial ratios are designed to extract important information that might not be obvious simply from examining a firm’s financial statements. Financial statement analysis involves comparing a firm’s performance with that of other firms in the same industry and evaluating trend in the firm’s financial position over time.

Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are

Seeing that financial ratios depend on the financial data of companies which are influenced by their accounting practices and procedures, information can be distorted and render the comparison of ratios less useable. Also ratios indicate on overall result for a period (financial year) but do not explain how this was achieved in detail and what factors favorable or unfavorable contributed to its

There are other parties apart from the management who would be interested in financial ratios. They include: creditors, who would be particularly interested in the liquidity ratios to determine the company’s ability to pay up, shareholders who would be interested in profitability ratios to establish whether the company is viable, potential investors who would like to determine the likely returns in their investments.