Overview
To prepare for your report in Project Two, you must calculate the financial ratios needed to determine your chosen business’s current financial health. Once you’ve calculated these ratios, you will use the results to analyze the business’s current financial position. This will help you make decisions about how to improve or maintain their financial health. Pay close attention to working capital management. If liquidity is an issue, think about how the company will meet its short-term obligations.
Directions
For the company you chose in the Module Two journal assignment, open the following documents:
- The balance sheet, income statement, and cash flow statement from the most recent fiscal quarter (from Mergent Online)
- The Ratios Most Recent Fiscal Qtr worksheet in the Project Two Financial Formulas workbook.
For example, if the most recent fiscal quarter available is the third quarter in 2022, you’ll compare those results to the same financial calculations from the third quarter in 2021.
Use the documents to calculate key financial ratios.
Then open the following documents:
- The balance sheet, income statement, and cash flow statement from the same fiscal quarter one year ago
- The Ratios Same Fiscal Qtr 1 Year Ago worksheet
Use the documents to calculate the same financial ratios. Finally, compare those ratios and analyze your results.
Specifically, you must address the following rubric criteria:
- Financial Calculations. Calculate accurate financial formulas to assess the business’s current financial health. Specifically, calculate the following formulas using the Ratios Most Recent Fiscal Qtr and the Ratios Same Fiscal Qtr 1 Year Ago worksheets in the Project Two Financial Formulas workbook:
Working capital
Current ratio
Debt ratio
Earnings per share
Price/earnings ratio
Total asset turnover ratio
Financial leverage
Net profit margin
Return on assets
Return on equity - Fiscal Quarter Comparison. Summarize the differences between the following:
The results from your financial calculations of the most recent fiscal quarter
The results of the same financial calculations of the same fiscal quarter from one year agoFor example, if the most recent fiscal quarter available is the third quarter in 2022, you’ll compare those results to the same financial calculations from the third quarter in 2021.
- Comparison Analysis. Explain what your calculations and comparison show about the business’s current financial health. Give examples to support your explanation for the following questions:
Do the results show the business is financially healthy or unhealthy? Which results indicate this?
What might be the causes of the business’s financial success or failure?
Is more information needed to determine the business’s financial health? If so, which pieces of information might still be needed? - Short-Term Financing. Explain how potential short-term financing sources could help the business raise funds needed to improve its financial health. Base your response on the business’s current financial information.
What to Submit
Your submission should be a 2- to 3 page Word document with 12-point Times New Roman font, double spacing, and one-inch margins. You must also submit the following:
- The Ratios Most Recent Fiscal Qtr worksheet from the Project Two Financial Formulas workbook
- The Ratios Same Fiscal Qtr1 Year Ago worksheet from the Project Two Financial Formulas workbook
- The Excel files for your downloaded balance sheet, income statements, and cash flow statements from Mergent Online
Supporting Materials
The following resources can help you complete this milestone:
Video: Mergent Online: Public Company Financials (4:46)
Watch this video from the Shapiro Library to learn more about how to access and use Mergent Online. This video shows information on the As Reported Currency page within the Company Financials tab. For the purposes of this course, however, the best way to see financial data is to click Standardized beneath the Company Financials tab. This will allow you to access the Standardized Annual Balance Sheet.
Shapiro Library FAQ:
How Do I Cite a Company Profile From Mergent Online?
Use this resource to help answer any questions you have about citing from Mergent Online.
RATIOS Most Recent Fiscal Qtr
ACCOUNTING & FINANCIAL RATIOS
CURRENT RATIO (Current Assets / Current Liabilities)
TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets)
Current Assets
Total Revenue
Current Liabilities
ERROR:#DIV/0!
Total Assets
ERROR:#DIV/0!
WORKING CAPITAL (Current Assets – Current Liabilities)
: *Note to students: Be mindful of the scale being used in Mergent Online when filling this out. If a number is written as 12.53, that does not mean the total for that item is $12.53. There could be numerous zeros written after it, depending on the scale labeled above. In this example, 12.53 is actually $12,530,000. (To delete this comment, right-click on the “WORKING CAPITAL” box, then select Delete Comment from the drop-down menu.)
FINANCIAL LEVERAGE (Total Assets / Shareholder’s Equity)
Current Assets
Total Assets
Current Liabilities
0
Shareholder’s Equity
ERROR:#DIV/0!
DEBT RATIO (Total Liabilities / Total Assets)
NET PROFIT MARGIN (Net Income / Total Revenue)
Total Liabilities
Net Income
Total Assets
ERROR:#DIV/0!
Total Revenue
ERROR:#DIV/0!
EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding)
RETURN ON ASSETS (Net Income / Total Assets)
Net Income
Net Income
Shares Outstanding
ERROR:#DIV/0!
Total Assets
ERROR:#DIV/0!
PRICE EARNINGS RATIO (Share Price (end of quarter / EPS)
RETURN ON EQUITY (Net Income – Preferred Dividends / Shareholder’s Equity)
Stock Price
NI – Pref. Div.
EPS
ERROR:#DIV/0!
Shareholder’s Equity
ERROR:#DIV/0!
RATIOS Same Fiscal Qtr 1 Yr Ago
ACCOUNTING & FINANCIAL RATIOS
CURRENT RATIO (Current Assets / Current Liabilities)
TOTAL ASSET TURNOVER RATIO (Total Revenue / Total Assets)
Current Assets
Total Revenue
Current Liabilities
ERROR:#DIV/0!
Total Assets
ERROR:#DIV/0!
WORKING CAPITAL (Current Assets – Current Liabilities)
: *Note to students: Be mindful of the scale being used in Mergent Online when filling this out. If a number is written as 12.53, that does not mean the total for that item is $12.53. There could be numerous zeros written after it, depending on the scale labeled above. In this example, 12.53 is actually $12,530,000. (To delete this comment, right-click on the “WORKING CAPITAL” box, then select Delete Comment from the drop-down menu.)
FINANCIAL LEVERAGE (Total Assets / Shareholder’s Equity)
Current Assets
Total Assets
Current Liabilities
0
Shareholder’s Equity
ERROR:#DIV/0!
DEBT RATIO (Total Liabilities / Total Assets)
NET PROFIT MARGIN (Net Income / Total Revenue)
Total Liabilities
Net Income
Total Assets
ERROR:#DIV/0!
Total Revenue
ERROR:#DIV/0!
EARNINGS PER SHARE (Net Income / Weighted Average Common Shares Outstanding)
RETURN ON ASSETS (Net Income / Total Assets)
Net Income
Net Income
Shares Outstanding
ERROR:#DIV/0!
Total Assets
ERROR:#DIV/0!
PRICE EARNINGS RATIO (Share Price (end of quarter / EPS)
RETURN ON EQUITY (Net Income – Preferred Dividends / Shareholder’s Equity)
Stock Price
NI – Pref. Div.
EPS
ERROR:#DIV/0!
Shareholder’s Equity
ERROR:#DIV/0!
NPV
Net Present Value (NPV) Calculator
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2-2 Journal: Financial Statements and Cash Flow Management
Cole Staats
Southern New Hampshire University
FIN-320 Principles of Finance
January 14, 2023
2-2 Journal: Financial Statements and Cash Flow Management
Johnson & Johnson (JNJ) is the company that I have decided to use for project two. Robert Wood, who would later become the founder of Johnson & Johnson, received his initial training in the pharmaceutical industry as an apprentice. In 1886, he and his two younger brothers, Edward Mead, and James Wood founded the company that would later become known as Johnson & Johnson. The location of company’s global headquarters was originally established in New Brunswick and continues to be located there today (Johnson & Johnson. n.d.). Items associated with humans’ well-being and prosperity are the primary focus here. A variety of products that are utilized in wound care, oral care, healthy skin, over-the-counter drug, and childcare markets are included in the consumer section of the company’s catalog (Johnson & Johnson n.d.). Band-Aid, Benadryl, Aveeno, and Listerine are some well-known brands that you might be familiar with.
The preparation of financial statements is an essential part of running a business. These statements provide a snapshot of an organization’s current financial health as well as insight into its operations, activities, and revenues. The provision of information regarding an organization’s income, costs, benefits, and obligations can be found in its financial summary, which is an essential document. Please find a copy of the most important financial data for the company below.
The preparation of accurate financial statements is critical for the success of any business. The financial statements of a company offer a graphical representation of the company, which can be used to describe the business to investors and other parties who are not affiliated with the company, in addition to the employees of the company (Titman, Keown, Martin, 2017). The primary financial statements consist of balance sheets, income statements, cash flow statements, and statements of shareholders’ equity. The assets owned by a business as well as its liabilities are detailed in the balance sheet for that point in time (US SEC, 2007). The income statements of a company detail how much money was made and spent over a specified period (US SEC, 2007). Cash flow statements outline the monetary transactions that take place over a specified period between an organization and the outside world (US SEC, 2007). The fourth financial statement is referred to as a “statement of shareholders’ equity,” and it details the changes that have occurred over time in the interests of the company’s shareholders (US SEC, 2007).
The management of cash flow is essential if you want to make sure that your company is not overspending its available funds. The management team should perform daily checks on the company’s cash flow as part of their responsibilities. Additionally, it is essential to plan projections for each month in advance. This will assist the company in identifying potential problems in advance. However, keep in mind that these are just educated guesses that attempt to balance out factors such as payments, expenditures, and so on. You should also make a note of the upcoming amounts of cash disbursements as well as their dates.
The company I chose to research is Bed Bath & Beyond. My wife and I go to this store and shop for those key home needs. What I found shocking is that the company is on the verge of bankruptcy. With that said, Bed Bath & Beyond’s struggles are hardly news, after glancing at the company’s long-term performance it revealed a declining business for some time now (Pope, 2022). Ongoing cash losses have forced Bed Bath & Beyond to borrow money to keep the business running whereas of today they have $1.7 billion in long-term debt (Pope, 2022). Bed Bath & Beyond is trying to restructure without declaring bankruptcy with only $135 million in cash (Pope, 2022). Also, some of the executives are trying to move around some of the debt to help achieve this. However, the outcome does not look promising because low cash flow and high debt are both disasters for any company.
References
Johnson & Johnson. (n.d.).
Our Beginning. Retrieved January 13, 2023.
https://ourstory.jnj.com/our-beginning
Mergent Online. (n.d.).
Johnson & Johnson (NYS: JNJ). Retrieved January 12, 2023.
https://www-mergentonline-com.ezproxy.snhu.edu/companyfinancials.php?pagetype=standardized&compnumber=4593&period=Quarters&dataarea=BS&range=5¤cy=AsRep&scale=AsRep&Submit=Refresh&csrf_token_mol=90f0e5bcb8
Pope, Justin. (2022, December 29).
Is Bed Bath & Beyond Stock Heading for a Bankruptcy Filing? Here’s What the Charts Say. Retrieved January 13, 2023.
https://www.fool.com/investing/2022/12/29/is-bed-bath-beyond-stock-heading-for-a-bankruptcy/
Titman, S., Keown, A., & Martin, J. (2017). Financial Management: Principles and Applications (13th ed.). Pearson.
US SEC. (2007, February 5).
Beginner’s Guide to Financial Statements. Retrieved January 13, 2023.
https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguide
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