REPUBLIC OF THE PHILIPPINES
UNIVERSITY OF ANTIQUE
COLLEGE OF BUSINESS AND ACCOUNTANCY
SIBALOM, ANTIQUE
Financial Management
Module 2
Lesson 2
Assignment
Submitted by:
Christel Jean M. Canja
BSA 2A
Submitted to:
Elaine Krysta S. Pondo, MBA
Instructor
REPUBLIC OF THE PHILIPPINES
UNIVERSITY OF ANTIQUE
COLLEGE OF BUSINESS AND ACCOUNTANCY
SIBALOM, ANTIQUE
1. Financial ratio analysis is conducted by three main
groups of analysts: credit analysts, stock analysts and managers. What is the primary emphasis of
each group, and how would that emphasis affects the ratios they focus on?
ANSWER:
The emphasis of the different types of analysts does not and should not be equal. For two reasons,
management is interested in all forms of ratios. First, the ratios indicate weaknesses that should
be addressed; second, management understands that all of the ratios are important to other parties,
and that financial appearances must be maintained if the company is to be considered favorably
by creditors and equity investors. Stockholders are primarily concerned with profitability, but
they also look at the other ratios to assess the riskiness of equity investments. The debt, interest,
and income coverage ratios, as well as the profitability ratios, are more important to credit
analysts. Short-term creditors place a premium on liquidity and pay close attention to the current
ratio.
2. Why would the inventory turnover ratio be more important for someone analyzing a grocery store
chain than an insurance company?
ANSWER:
Due to the much larger inventory needed and the fact that part of that merchandise is perishable,
the inventory turnover ratio is significant for a grocery store. Since its line of business is selling
insurance policies and other related financial products, contracts printed on paper and entered into
between the company as well as the secured insurance company would have no inventory. This
issue indicates that the individual should not approach financial analysis in a conventional
manner, but rather should investigate the business under consideration before performing a ratio
analysis.
3. Explain the concept of liquidity and why it is crucial to company survival.
ANWER:
Liquidity refers to how much cash a corporation has on hand and how much it can raise
immediately. This is crucial for the company's sustainability because cash is required to meet
obligations such as wages and debts.
The term "liquidity" refers to the availability of currency. Cash is essential since the corporation
uses it to pay its bills and other expenditures. Assets or cash equivalents that may be changed into
cash quickly and simply constitute liquidity for a firm. This is the contrary of strain, which is
when you borrow money from other people to acquire stocks or expand your business. If a
corporation has a large cash position, it can use it to either endure the current conditions or to buy
lesser enterprises for cents on the currency after things have settled down.
4. Explain in general terms the concept of return on investment. Why is this concept important in
the analysis of financial performance?
ANSWER:
Return on investment (ROI) is a metric that measures profitability in terms of the amount of
money invested in the company. A company's financial profit may always be increased by raising
the quantity of investment, assuming it is a profitable investment. As a result, calculating profits
in cash isn't always a useful way to assess financial performance. Return on investment needs us
to focus not just on the income statement, but also on the balance sheet, whether we are investors
or business managers.
