Financial Management Report: Ratio Analysis and Growth

This financial management report delves into various aspects of financial principles and practices. It begins with an analysis of financial statements, including the importance of liquidity and the limitations of certain statements. The report explores key financial techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR) and their applications in risk management. It further examines the roles of savers and borrowers in capital transfer, the factors influencing loan decisions, and the significance of ethical guidelines in business operations. The report addresses ethical dilemmas, corporate social responsibility, and the impact of economic conditions on the cost of capital. It also differentiates between internal and external growth strategies. The report includes case studies, ratio analysis, calculations of growth rates, cash flow analysis, and the determination of book value per share and market value. The report references multiple academic sources to support the analysis and findings.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Section 1..........................................................................................................................................2
Section 2..........................................................................................................................................4
Exercise 1.....................................................................................................................................4
Exercise 2.....................................................................................................................................5
Exercise 3.....................................................................................................................................6
Exercise 4.....................................................................................................................................6
References........................................................................................................................................8
Appendix..........................................................................................................................................9
1) Ratio Analysis.........................................................................................................................9

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Section 1
1) Statement B seems to be incorrect for the company whereby the first half of the statement
seems to be well incorrect as the liquidity for the stocks may not always exist for the shares of
the company.
2) Net Present Value and Internal Rate of Return are some of the common technique that has
been widely used by companies and firms for the purpose of well managing or hedging the risk
of the company. The application of NPV is certainly done for the purpose of well managing, the
various cash flows whereby conventional cash flows flowing is well encountered (Zore et al.,
2018).
3) Savers are usually the individuals that would be providing capital and borrowers are generally
the corporations. The transfer of capital is usually done from the individuals to borrowers for the
purpose of well transferring the associated set of amounts, so that the same can be invested into
business activities and operations (Frank and Shen 2016).
4) Loans to individuals are given based on the salary earned, time period of loan, interest rate
charged and mortgage placed for loan. On the other hand, in the case of Loans to Corporations
would be well granted based on their profitability, interest coverage, debt to asset and debt to
equity ratio, further more time or tenure is generally higher and interest rates vary depending
upon the credibility of the corporation (El Ghoul et al., 2018).
5) Ethical Guidelines, rules and policy are some of the important and crucial steps which are well
highlighted in every business and non-business course so that employees or persons involved in
the business are well aware of the ways and methods in which various works and activities are

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undertaken. Ethics would be bringing discipline which would definitely allow all the parties well
aware of the various rules and regulations (Ebenezer 2017).
6) The ethical dilemma well explains, that when the CEO of a firm has an opposite motive and
incentive in respect to the shareholders of the company, then there arise a conflict of interest
between the shareholder’s and the management of the company. In the analysed case, the same
well says that we as a CEO have an incentive for well overpaying for another set of company
when we go for a merger or acquisition because of the fact that pay scales of management would
be increasing based on increased business operations and activities (Yermack 2017).
7) Firms do have an ethical responsibility whereby it is expected that the company well follows a
set of regulation in which protecting the environment, people and the society on a whole is the
key motive whereby reducing air, water and noise pollution can help protect the environment.
Providing a safe working environment along with providing right products should be the
responsibility of the company as the growth of the company would be depending on the overall
growth of environment and society on a whole (Jacoby 2018).
8) Economic Condition like the changes in the interest rates and changes in the business cycle of
the economy are some of the key factors which can well affect the cost of capital. For example in
recessions banks and financial institution would not want to lend much and if they do so they
would be doing that a higher rate of interest rate which in turn would be increasing the cost of
capital for the company.
9) Internal growth rate for the company comes with the expansion of business projects,
operations and various other activities that are widely carried out by the company. On the other
hand, external growth fate for the company comes in the form of merger and acquisition which is

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also referred as the inorganic growth approach. External growth is useful for the company when
the acquisition of other company would enhance the current business operations of the company
and the same would be creating a positive synergy for the company.
10)
i) A system failure for the provision of good care at the Stafford Hospital, and personal failing of
new staffs to well cater their jobs and responsibility were the key reasons for the failure of
Hospital. It is important to note that both the Trust Board and the whole system failed to address
the concerns and protect the patients from the unacceptable risks of harms that have caused to
them due to inhumane treatment followed, which lead to failure of corporate governance policy
at hospital.
ii) Agency Problem is defiantly a concern as the management was not well carrying its set of
responsibility for well maximizing the wealth of the shareholders of the company. In this case
the agency problem exists whereby management or board is not acting in the best interest of
shareholders.
iii) Incorrect procedure, methods and not following the given set of rules and regulations would
be leading to the failure and fall in the business operations of the Hospital. Non Compliance with
the given set of rules and regulations would further be creating a negative in the field of
corporate governance practices (Badu and Appiah 2017.).
Section 2
Exercise 1
Ratio Analysis (Appendix 1).

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The liquidity position of the company can be well assessed with the help of the current
ratio which was around 1.33 times in the year 2012 stating that the company on a comparative
basis was having around 1.30 times of current assets with respect to the current liability of the
company. However, the quick ratio for the firm might not be as adequate or favorable for the
company as desired for the company when considering the liquid cash that the company might
be having for well paying off its current obligations. It is important to note that if the company
have a sound amount of working capital than it would be sound for the company to carry on its
business operations in an uninterrupted manner.
Exercise 2
The maximum growth rate can be well determined given the current set of formula:
 g: Retention Ratio (Amount Retained)*Return on Equity
 Retention Ratio: 1-(Total Dividend Paid/Total Earnings).
 Retention Ratio: 1-(950/2500).
 Retention Ratio: 63.46%.
 Return on Equity: 2600/14510
 ROE: 17.92%.
 g: 63.46%*17.92%
 g: 11.37%.
The determined set of growth rate would be helping he company in well understanding the
amount it is well retaining for the purpose of growth of the company. The growth rate
established with the company would be in the set of current business activities which would be
well guiding the company in respect to the amount of growth that it can achieve.

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Exercise 3
1) The cash flow from assets for the year 2011 has been around $1732 which has been well
calculated as shown below:
2) The liquidity position of the company has been well assessed with the help of the Net
Working Capital that the company has reported which was around $1933 which increased
substantially to around $3239 in the next year stating that the company had a significant amount
of working capital for the company.
Exercise 4
The book value per share was well calculated by taking the reported book value of total
equity divided by the shares outstanding which gave a value of $25. On the other hand, the
market value for the stock was calculated to be around $52. The difference between these two
value are because of the fact that book value per share are recorded at historical prices which
does not incorporate the current value of the firm or the future prospects of the company. On the

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other hand the market value does and this has been the key reason for having a wide difference
of around $27.00.

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References
Badu, E.A. and Appiah, K.O., 2017. The effects of board experience and independence on
mitigating agency conflict. Journal of Accounting in Emerging Economies.
Ebenezer, A.B., 2017. Board Monitoring Intensity and Firm Performance Nexus: The
Moderating Effect of Agency Conflict. Public Policy and Administration, 1(1), pp.35-43.
El Ghoul, S., Guedhami, O., Kim, H. and Park, K., 2018. Corporate environmental responsibility
and the cost of capital: International evidence. Journal of Business Ethics, 149(2), pp.335-361.
Frank, M.Z. and Shen, T., 2016. Investment and the weighted average cost of capital. Journal of
Financial Economics, 119(2), pp.300-315.
Jacoby, S.M., 2018. The embedded corporation: Corporate governance and employment
relations in Japan and the United States. Princeton University Press.
Yermack, D., 2017. Corporate governance and blockchains. Review of Finance, 21(1), pp.7-31.
Zore, Ž., Čuček, L., Širovnik, D., Pintarič, Z.N. and Kravanja, Z., 2018. Maximizing the
sustainability net present value of renewable energy supply networks. Chemical Engineering
Research and Design, 131, pp.245-265.

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Appendix
1) Ratio Analysis
Particulars Formula Amount
Current Assets $24,654.00
Current Liabilities $18,480.00
Current Ratio Current Assets/Current Liabilities 1.33
Current Assets-Inventory $11,214.00
Current Liabilities $18,480.00
Quick Ratio Current Assets-Inventory/ Current Liabilities 0.61
Accounts Receivable 9,660.00
Net Credit Sales $58,800.00
No of Days in Year 360
Day's Sales Outstanding (Accounts Receivable/Credit Sales)*365 59
Sales $58,800.00
Total Assets $42,000.00
Total Assets Turnover Sales/Total Assets 140%
Cost of Goods Sold $54,978.00
Inventory 13,440.00
Inventory Turnover Ratio COGS/Inventory 4.09
Total Debt $29,400.00
Total Assets $42,000.00
Debt to Assets Ratio Total Debt/Total Assets 0.70
Net Profit $1,133.00
Total Assets $42,000.00
Return on Assets Net Profit/Total Assets 2.70%
Net Profit $1,133.00
Shareholder's Equity $12,600.00
Return on Equity Net Profit/Equity 8.99%
Net Profit $1,133.00
Sales $58,800.00
Net Profit Margin Net Profit/Sales 1.93%
Share Price $77.69
Earnings Per Share $6.47
Price to Earnings Ratio Share Price/EPS 12.00
Ratio Analysis