Financial ratio analysis is an important topic and is covered in all mainstream corporate finance textbooks. It is also a popular agenda item in investment club meetings. It is widely used to summarize the information in a company's financial statements in assessing its financial health. In today's information technology world, real time financial data are readily available via the Internet. Performing financial ratio analysis using publications, such as Robert Morris Associates’ Annual Statement Studies, Dun & Bradstreet’s Key Business Ratios, Moody’s Manuals, Standard & Poor’s Corporation Records, Value Line Investment Survey, etc., is no longer efficient. Since students and investors now have easy access to on-line databases, the assignments on financial ratio analysis can be modified accordingly to enhance learning. Based upon my experience as a finance professor and as a member of a local investment club, I have prepared this teaching note to help students and investors in performing financial ratio analysis via an on-line database, Dow Jones Interactive. This database is a Web based, enterprise wide business news and research solution supported by Dow Jones & Company, the parent company of The Wall Street Journal. The class assignment presented herein is designed to demonstrate how to assess a company's overall operations over time and its current financial standing in the industry.
THE FINANCIAL RATIO ANALYSIS ASSIGNMENT
- retrieve real time financial data via the Web;
- analyze the financial performance of selected companies;
- practice communication skills, both in writing (through word processing) and in speaking (through giving a Power Point presentation);
- enhance teamwork skills.
- Go to the University Library home page
- Click on Research Resources
- Click on Dow Jones Interactive (DJI)
- On DJI page, click on Company and Industry Center
- Click on Financial Profile
- Select Region: Worldwide
- Enter Company Symbol: ____________
- Display as: Formatted report
- Click on Get Report
- Download the report including Key Financial Ratios, Balance Sheets, Income Statements and Key Competitors (see APPENDIX 1 for an excerpt Financial Profile of Intel)
- Leverage Ratios: to measure the extent to which the company's assets are financed with debt;
- Liquidity Ratios: to measure the company's ability to pay its bills;
- Profitability Ratios: to measure the company's ability to generate earnings;
- Efficiency Ratios: to measure the company's ability to utilize its assets;
- Market Value Ratios: to measure the market perception about the company's future prospects.