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Financial Management - Case Study Of Lehman Brothers Business

   

Added on  2020-03-07

12 Pages2851 Words54 Views
Running head: FINANCIAL MANAGEMENTFinancial managementName of the studentName of the universityAuthor note

1FINANCIAL MANAGEMENTTable of ContentsIntroduction................................................................................................................................2Analysis of financial statement..................................................................................................2Identification of key ratios and ratio analysis............................................................................3Arguments with regard to the success of the company..............................................................4Impact of political competitive environment.............................................................................6Ethical considerations................................................................................................................6External factors required to be considered.................................................................................7Recommendation........................................................................................................................8Reference....................................................................................................................................9

2FINANCIAL MANAGEMENTIntroductionDuring 1844, the German immigrant Henry Lehman started his business journey withthe grocery shop in small city of United States. Eventually, the company expanded the capitalmarket through commercial paper trading that led their position as the official dealer of theUS treasury (Mensah, 2015). However, the happy days of the company started ending withthe 2007 financial year closing.Analysis of financial statementThe given case study of Lehman Brothers Holdings Inc. represented their quarterlyincome statement and the quarterly balance sheet for the financial year 2007-08. The incomestatement revealed the quarterly financial data for the months of August 2007, November2007, February 2008, May 2008 and August 2008. Further, the balance sheet revealed thequarterly financial data for the months of August 2007, November 2007, February 2008 andMay 2008 (Fleming & Sarkar, 2014). It can be identified from the financial statement of thecompany that the total revenue of the company are in decreasing trend and fell to 2.40 inAugust 2008 from 14.74 in August 2007. Further, the the company was not able to generateany positive income and their loss after tax for August 2007 was 3.93 whereas the incomeafter tax for that of August 2007 was 0.89. The earnings per share of the company was also innegative for August 2008 and that was 5.93 per share whereas, the EPS for August 2007 was1.53.The total assets of the company were moving around 5.40 to 5.90 during the periodand did not have any considerable change. On the other hand, the liabilities of the companywere highest during February 2008 and amounted to 761.21 and it was lowest during May

3FINANCIAL MANAGEMENT2008 that amounted to 613.15 (Ahnert & Kakhbod, 2017). Therefore, it can be said that theliquidity position of the company were improved.Identification of key ratios and ratio analysisRatio calculationRatioFormulaResultAug-07Nov-07Feb-08May-08Liquidity Ratio Current ratioCurrent asset /Current liabilities0.620.640.630.65Profitability ratio Return on sales ratioOperating profit / Net sales0.080.090.06-0.70Return on Assets ratioNet sales / Average total assets0.020.020.020.01Solvency ratioDebt to equity ratioTotal liabilities / Total equity29.3429.7330.6623.33Equity ratioTotal equity / Total assets0.030.030.030.04Analysis of ratioLiquidity ratio – The liquidity ratio is calculated for measuring the ability of the company topay back its current obligations. Further, the current ratio is used for taking roughmeasurement of financial health of the company. The current ratio of the company is movingaround 0.60 to 0.65. Current ratio less than 1 indicates that the company is not in a goodposition to pay off their short-term, obligations with the available short-term assets. Profitability ratio – the profitability ratio of any organization calculates its ability to convertits sales into income. Looking at the profitability ratio of the company, it is identified thatreturn on sales of the company was moving around 6% to 9% till February 2008. However,during next quarter that is May 2008, the company was not even able to generate positive

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