JaredLindenbergFlowServeRatioAnalysis

JaredLindenbergFlowServeRatioAnalysis - Jared Lindenberg...

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Jared Lindenberg Flow Serve Ratio Analysis Kiss – Sect: 0701 March 11, 2011 Return on Common Equity = Return on Equity Net IncomeTotal Common Equity Return on common equity, the bottom-line accounting ratio, measures the rate of return on common stockholders’ investment. In other words, the ROE gives investors an understanding of the returns the firm is making in the form of profits (after-tax net income), from their contributed shareholder’s equity. Flowserve’s 2009 reported ROE is 27.05%, which varies from the 2009 calculated ROE of 23.8%, which is still significantly higher than the industry mean of 13.39%. The ratio saw a sharp increase from the 2007-2008 fiscal year, increasing from 19.8% to 32.3%, seeing a 63.1% increase in ROE for the year of 2008. However, the ratio decreased from 32.3% to 23.8%, seeing a decrease of 26.3% for the 2008-2009 fiscal year. The overall ratio increased over the 2007-2009 period, as its saw and overall increase of 20.2%. This ratio is still significantly higher than the industry mean of 13.39%, by a margin of 77.74%, while physically being 10.41% higher. The overall improvement in the ROE can be seen in the company’s comprehensive balance sheet and income statements. In the income statement, the first thing that can be see that leads to a higher level of ROE is the significant increase in the level of sales over the 2007-2008 fiscal year, while falling only slightly short of that same level the next year. It appears that the operating expenses, interest, and taxes were about even, proving that the increase in the sales leads to the increase in the net income. However, the balance sheet reveals that common equity increases over the 2007-2009 period, with a sharp increase of the 2008-2009 period, stemming from a sharp increase in Retained Earnings for the 2009 year from the sharp increase in sales in the 2008 year.
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Inventory Turnover = Inventory Turnover SalesInventories The inventory turnover ratio is literally used to determine how many times a particular asset is turned over during the year. Usually, a low inventory turnover could mean overstocking or obsolescence of the inventory, whereas a high inventory turnover ratio allows one to infer a very speedy rate of sales being made at the firm. Flowserve’s reported 2009 inventory turnover was 3.41, which seemed especially off from the calculated 2009 rate being 5.49, which sits right above the industry mean, at 5.35. The ratio saw a very low decrease of 3.1% from the 2007-2008 year, mostly which was offset by the 2.4% increase in the 2008-2009 year. The overall ratio saw an overall decreased from 5.532 to 5.489, with the net change of -0.043, and with a decrease by a margin of 0.77%. The 2009 calculated ratio sits
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This note was uploaded on 09/07/2011 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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JaredLindenbergFlowServeRatioAnalysis - Jared Lindenberg...

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