3.2 Vertical Analysis On the other hand, a vertical analysis is useful in analyzing the profitability of a company on relation to its peer. By comparing the income statement of the peer group with Friedman Medical Group income statement for 2018, the company shows that it has lower operating expenses (98.3%) than the peer group (98.4%). This difference concurrently moves across all the other entries in the income statement and finally shows that Friedman Medical Group with a high net income (0.3%) in relation to its sales in 2018 than the peer group with 0.2% net income. Focusing on the balance sheet, the peer group shows a lower cash and equivalents (27.40%) than Friedman Medical Company which it offsets in the trade receivables where Friedman Medical company has 11.1% trade receivables in terms of total assets and the peer group has 11.4% trade receivables. Other changes are noted in the long-term investments where Friedman Medical Group shows a lower long-term investment in relation to total assets but later offsets this in the intangible assets. This information is presented in the attached spreadsheet.
7 FRIEDMAN MEDICAL GROUP FINANCIAL ANALYSIS 4.0 Ratio analysis Ratio analysis is one of the powerful tools that are used in financial analysis in companies as it facilitates the evaluation of the performance of the company. Below are some of the ratios I used to analyze Friedman Medical group performance. 4.1 Liquidity ratio These ratios are used to test the ability of the company in meet short term obligations. Current ratio- This compares current assets to current liabilities. The company showed a current ratio of 0.74:1. This means that the company is not in a better position of meeting short term liabilities as the current liabilities supersedes the current assets. Cash ratio- This is a ratio that is used to assess if a company is in a position to stay in operations by meeting short term obligations and maintaining a certain level of liquid cash. The company showed a cash ratio of 0.43:1 meaning it is not in a position to stay liquidated and meet short term obligations. 4.2 Activity Ratios Activity ratios are a category of financial ratios that measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Below are the activity ratios considered Accounts Receivable Turnover Ratio- this is a ratio that shows the ability of a company to collect money from its customers. The ratio stood at 0.16 days meaning that the company is efficient in collecting its receivables. Total Assets Turnover Ratio- this ratio is used to measure how efficiently a company uses its assets to generate sales. The company showed a total assets turnover ratio of 6.64
8 FRIEDMAN MEDICAL GROUP FINANCIAL ANALYSIS meaning that the company uses its assets effectively in generating sales by more than 6 times. 4.3 Expense of Sales Ratios This is a ratio that is used to show the relationship between sales and the expenses of a company.
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- Spring '18
- Professor Obura Oluoch