Financial Statement Analysis Project

Financial Statement Analysis Project - Financial Statement...

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Financial Statement Analysis Project FI504 Accounting and Finance: Managerial Use Prof: Diosdado Bayangos Written by: Rajashree Rudrapattana Lucy Hoang Jeff Ramos Victoria Berahmandpour Date: 06/12/2011 Table of Contents Executive Summary…………………………………………………………. .3 Brief Background of HP……………………………………………………. ..4 Environmental Scanning – SWOT Analysis………………………………. ..5
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Major Competitor IBM……………………………………………………. .7 Financial Ratio……………………………………………………………….9 Liquidity Ratio……………………………………………………. ..... 9 Activity Ratio…………………………………………………….……9 Solvency Ratio…………………………………………….…. ..……. .10 Profitability………………………………………………………. ..…11 Overall Analysis and Recommendation……………………………. ..……. .12 Recomendation. .……………………………………………. .……………….13 References……………………………………………………………….……14 I. Executive Summary : This report stands from the point of view of Hewlett-Packard (HP), and discusses about its business condition. In order to put up a clear picture of HP’s business level, a comparison in finance is made between HP and one of its biggest competitors, International Business Machines (IBM). The main criteria of this paper are financial analysis which is used to analyze whether an
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entity is stable, solvent, liquid, or profitable enough to be invested in. The evaluation is done by focusing on the income statement, balance sheet, and cash flow statement. Financial ratio analysis’ purposes are to evaluate HP’s past performance, the “ideal” benchmarks, its performance comparing to IBM and if HP meets its budget. Throughout these analyses, HP’s business state is visible and thus recommendations are given so as to make improvements to improve the negative sides of HP’s. Briefly, HP’s liquidity is trailing behind IBM; and so is its profitability and inventory turnover. On the other hand its asset turnover and accounts receivable turnover is higher than IBM; similarly, solvency ratios indicate that HP’s ability to cover debt with assets is higher than its competitor IBM. Overall analysis indicates that, first of all, even though HP has high revenues, but since its cost of goods sold is also high, the profit is reduced. Second of all, HP has a slow proceed of conversion of inventories to cash – which leads generate revenue. Thirdly, although HP has greater assets, there are many creditors claim for same assets. Hence the working capital is less, which in turn gives less production and less sales. Fourthly, the return on every dollar spent by HP for asset is less when compared to IBM. And last but not least, the return on every dollar
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This note was uploaded on 02/06/2012 for the course ACCOUNTING ACC 504 taught by Professor Neo during the Spring '11 term at DeVry Fresno.

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Financial Statement Analysis Project - Financial Statement...

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