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Hello students, here is a question.
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The four key uses of financial statement are owners or managers, lenders, investors, and government.
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These users rarely own financial statements to evaluate a company's post -financial performance as indicators in an area of profitability, liquidity, leverage, and efficiency.
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To create the benchmarking metrics and support future decision -making, choose two companies in the same industry whose financial statements are available online.
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Complete several financial ratios for each company and compare them.
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Share your analysis and answer for the following questions.
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What did your analysis tell you about these companies? what sort of decision would this analysis help you to make, such as buying stock, considering accepting an employee offer, etc.? so, this is our question.
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Let us discuss the answer for this.
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So, i have taken here the two companies in automobile industry, for example, maruti suzuki and tata motors.
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So, various financial ratios and what they indicate is as follow.
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So, the first thing is profitability ratio, profitability ratio, so which is net profit net profit margin of tata company that is 2 .91 and suzuki is 8 .71.
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After all kind of expenses, suzuki is able to earn 9 % of total revenue as net profit while tata 3%, the highest npm percent indicates that suzuki expenses are less, operationally it is strong.
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So, the next is return on equity, return on equity.
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So, the tata's will be 9 .11, suzuki is 16 .25.
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Out of every dollar invested by a shareholder, company is able to make 9 dollars and 16 dollars of a profit by tata and suzuki respectively.
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So, when i was a stockholder invested 100 dollars in both the companies, tata made 9 dollars and suzuki made 16 dollars from my 100 dollars, what is performing better here? yes, the correct answer is suzuki.
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And next is liquidity ratios, liquidity ratios.
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So, the first is current ratio.
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So, current ratios are tata, it is 0 .58 and suzuki is 0 .87.
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Out of every dollar that both the companies own, tata has 60 cents and suzuki has 90 cents.
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So, clearly suzuki can easily meet the short -term obligation because it has more liquidity in hand than tata.
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So, when it comes to a quick ratio, so tata will be 0 .37 and suzuki is 0 .64.
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If both companies need money to meet its short -term obligation, tata can quickly have 40 cents and suzuki can have 60 cents for every dollar obligation...