Demonstrate your understanding of financial concepts by completing the following calculations related to Jones Inc. and then evaluating the firm’s financial condition and performance.
To complete this assessment, use the information in the Financial Assessments Template, which is linked in the Resources under the Required Resources heading. Review the financial statements for Jones Inc. and the comparative financial ratios for the year-end review. Enter your calculations and written analysis directly into the template, and show or explain your work where appropriate.
Problem 1. Calculate the firm’s 2015 financial ratios for liquidity, activity (asset management), leverage (debt), and profitability.
Problem 2. Analyze the firm’s performance from both time-series and cross-sectional points of view using the key financial ratios provided in the template.
Problem 3. Calculate the operating cash flow based on your review of the firm’s income statement.
- How does operating cash flow (OCF) compare to free cash flow (FCF)?
- Why is the free cash flow so meaningful to management and investors?
Problem 4. Calculate the sustainable growth rate based on your calculations of return on equity (ROE) and assuming a 60 percent dividend-payout ratio. How can a company increase its sustainable growth rate?
Problem 5. Evaluate the firm’s overall financial condition and performance based on your analysis and then address these questions:
- Is the company improving or deteriorating over this three-year period?
- How does your ratio analysis justify your interpretation?Additional Resources for Further Exploration The following text is designed to assist learners to master core concepts, solve financial problems, and analyze results.Additional Resources
- Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2014). Corporate finance: Core principles and applications (4th ed.). New York, NY: McGraw-Hill.
- Read Chapter 2, “Financial Statements and Cash Flow,” pages 19–42.
- Read Chapter 3, “Financial Statements Analysis and Financial Models,” pages 43–81.
The text offers an introductory look at corporate finance.