Financial Ratios and Business Performance Analysis

This assignment delves into the crucial role of financial ratios in evaluating business performance. Students will examine a range of financial ratios, explore their applications across diverse industries, and understand how to interpret these ratios for informed decision-making. The assignment emphasizes practical application by utilizing real-world examples and case studies.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to 1.1:............................................................................................................................3
Answer to 1.2:............................................................................................................................3
Answer to 1.3:............................................................................................................................3
Answer to 1.4:............................................................................................................................3
Answer to 1.5:............................................................................................................................4
Answer to 1.6:............................................................................................................................4
Answer to 1.7:............................................................................................................................5
Answer to 1.8:............................................................................................................................5
Answer to 1.9:............................................................................................................................5
Answer to 2.a:............................................................................................................................5
Answer to 2.b:............................................................................................................................6
Answer to 2.c:............................................................................................................................6
Answer to 3:...............................................................................................................................7
Answer to 4:...............................................................................................................................7
Answer to 5.a:............................................................................................................................8
Answer to 5.b:............................................................................................................................8
Answer to 5.c:............................................................................................................................8
Answer to 5.d:............................................................................................................................8
Answer to 6.a:............................................................................................................................9
Answer to 6.b:............................................................................................................................9
Answer to 6.c:............................................................................................................................9
Answer to 7:.............................................................................................................................10
Answer to 8.a:..........................................................................................................................10
Answer to 8.b:..........................................................................................................................10

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Answer to 8.c:..........................................................................................................................10
Answer to 8.d:..........................................................................................................................11
Answer to 8.e:..........................................................................................................................11
Answer to 8.f:...........................................................................................................................11
Answer to 9:.............................................................................................................................11
Answer to 10.a:........................................................................................................................13
Answer to 10.b:........................................................................................................................13
Answer to 10.c:........................................................................................................................14
Answer to 10.d:........................................................................................................................14
Answer to 10.e:........................................................................................................................14
Reference and Bibliography:....................................................................................................15

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Answer to 1.1:
Particulars Amount
Total interest rate 8%/12 = 0.67%
Amount for loan $20,000,000.00
Time 10 * 12 = 120
Total monthly payments $ 242,655.19
Answer to 1.2:
Particulars Amount
Total interest rate 8%/12 = 0.67%
Amount for loan $ 20,000,000.00
Interest Payment 1st year $ 133,333.33
Answer to 1.3:
Particulars Amount
Interest Payment 1st year $ 133,333.33
Total monthly payments $ 242,655.19
Principal Payment 1st year $ 109,321.86
Answer to 1.4:
Particulars Amount
Total monthly payments $ 242,655.19
Total interest rate 8%/12 = 0.67%
Time 7 * 12 = 84

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Amount owed (Loan) $ 15,568,577.62
Answer to 1.5:
Particulars Amount
Amount owed (Loan) $ 15,568,577.62
Cost for Refinance $250,000
Total interest rate 7%/12 = 0.58%
Tenure 7 * 12 = 84
Monthly instalments $ 242,655.19
Loan payments (Monthly) $234,971.56
Difference in payments $7,683.63
Particulars Amount
Difference in payments $7,683.63
Rate 7%/12 = 0.58%
Time 7 * 12 = 84
Present value of difference in payments $ 509,096.39
Answer to 1.6:
Particulars Amount
Amount for loan $20,000,000.00
Actual building value $ 25,000,000.00
Interest rate 8%/4 = 2.00%
Time 10*4 = 40

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Payments in quarterly $731,115.96
Answer to 1.7:
Particulars Amount
Payments in quarterly $731,115.96
Time 7*4 = 28
Interest rate 8%/4 = 2.00%
Payments in 3 years $ 15,559,056.50
Answer to 1.8:
Particulars Amount
Interest rate 8%
Answer to 1.9:
Particulars Amount
N 5.00
r 8%/12 = 0.67%
Effective annual rate (EAR) 4.90
Answer to 2.a:
Particulars Amount
Time 10.00 years
Current price $100.00
Current price $78.12
Return 2.50%

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Answer to 2.b:
Particulars Amount
Current price $100.00
Bond price $ 78.12
Time 9
Current price $ 73.37
Loss $ 4.75
Answer to 2.c:
Particulars Amount
FV 1000
rate 3.50%
n 9
Bond price 1000
Coupon payment rate 2.50%
Market price $923.92
Loss $76.08
Particulars Amount
Percentage of loss 8.23%
Percentage of loss 6.08%
From the relevant calculations conducted in the above table the overall percentage of
loss from bond is relatively higher than the loss conducted from share price.

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Answer to 3:
Particulars Amount
Next Annual dividend $ 3.70
Dividend growth rate 5.00%
Market return 11.00%
Expected Share price of McDonalds $ 61.70
Particulars Amount
Next annual dividend 3.70
Dividend growth rate 5.00%
Return from investment 6.00%
The above calculations mainly indicate expected share price of McDonalds from
$61.70. Furthermore, the theoretically price of the company is relatively lower than the actual
share price of McDonalds. Moreover, calculation of the overall return that is generated from
investment is 6%.
Answer to 4:

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Answer to 5.a:
Answer to 5.b:
Answer to 5.c:
Answer to 5.d:
The calculation conducted in IRR and NPV mainly indicates the positive attributes of
the overall project. The NPV is mainly at the levels of $8,672.54, which is relatively positive
and indicate viability of the project. In addition, the IRR is mainly at the levels of 16%, which

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is higher than cost of capital of 12%, which portrays financial performance of the project
(Balakrishnan, Watts & Zuo, 2016).
Answer to 6.a:
Answer to 6.b:
Answer to 6.c:
The major difference in ranking is due to the investment appraisal techniques used in
ranking the project. The investment appraisal technique such as NPV and IRR is mainly used
in deriving the rank of both the projects. According to NPV valuation the Renovate project is
viable, while Replace project is considered viable in case of IRR. The calculation of IRR and
NPV is the main reason behind the difference in ranking of both the projects (Loughran &
McDonald, 2016).

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Answer to 7:
Answer to 8.a:
Answer to 8.b:
Answer to 8.c:

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Answer to 8.d:
Answer to 8.e:
Answer to 8.f:
Answer to 9:
Ratios Explanation
Quick ratio The quick ratio calculation allows the investors in identifying
ability of the company to support its financial obligations by
selling its current assets. The quick ratio mainly needs to be over
1, which indicates financial performance of the organisation
(Goyal & Bhatia, 2016).
Cash ratio Cash ratio allow the investor in detecting the overall cash, which is
currently available to the company. This also helps in identifying
whether the company could face short term liquidity issue, which
could hamper its operational capability.
Capital intensity ratio The capital intensity ratio is mainly used in comparing the capital

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utilised by the company in generating the relevant revenue.
Total asset turnover The total asset turnover ratio indicates the overall assets that is
used by the company in generating the relevant revenue. This
indicates effectiveness of the management in utilising the
deployed assets in generating higher return from investment.
Equity multiplier The equity multiplier ratio mainly allows the investor in detecting
the minimum finance from equity, which is used by company in
acquiring relevant assets. In addition, the investor can detect the
level of debt that is used by the organisation in acquiring its assets
(Cengiz, Combs & Samy, 2017).
Long-term debt ratio The identification of long term debt ratio allows investor in
identifying the portion of long term debt present in the current
assets accumulated by the organisation. In addition, this detection
of debt used by the company helps in evaluating organisations
solvency condition.
Times interest earned
ratio
The calculation of time interest earned allows the investor to
identify financial viability of the company in paying its finance
cost. The higher times interest earned ratio allows the investor in
understanding the extra debt, which could be accumulated by the
company to support its activities.
Profit margin The profit margin ratio allows the investor in identifying net
profits, which is generated from investment. The investors can
detect financial trend of the organisation, where its financial
stability can be identified (Kanapickiene & Grundiene, 2015).
Return on assets The return that is generated from deployed assets are mainly

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identified with the help of return on assets. This indicates the
overall efficiency of the management in utilising the present assets
in generating the required level of net profits.
Return on equity The equity capital utilised by the company in generating high level
of returns can be identified with the help of return on equity ratio.
Investors are able to understand the level of capital used by the
company to conduct its operations.
Price earnings ratio The ratio is mainly used by investors in detecting whether the
share price of the organisation is overvalued or undervalued. This
helps them to make adequate investment decision and increase
their return from investment.
Answer to 10.a:
Answer to 10.b:

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Answer to 10.c:
Answer to 10.d:
Answer to 10.e:
The investor is mainly a risk taker as derived from the evaluation of the above
portfolio. In addition, the investor mainly aims in increasing its returns while ignoring the
entire risk involved with investment.