Indicate some of the concerns or cautions that need to be considered when conducting ratio analysis.
Go to the Hoovers business online at hoovers.com and click on “Companies A-Z.” Identify a firm such as Google, Inc. (ticker symbol: GOOG) or Applebee’s International, Inc. (ticker symbol: APPB). Obtain the most recent three years of income statements and balance sheets. Analyze the changes in operating and financial performance, if any, by applying three (3) ratios covered this week.
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first classmates post:Hello class and professor,
The connections between two or more financial variables, or between financial variables and time, are shown by financial ratios. They are a handy tool to summarize vast sums of financial data to simplify over time comparisons of a company’s performance and other companies. (Leach pg, 164). In order to determine a current profitable trend, or provide a business decision environment, a ratio analysis examines the financial data of a company. Improper data and inaccurate analysis might occur if necessary safeguards are not taken. Furthermore, when using ratio analysis to make business choices, financial data from the company are essential. Total revenues, financial liabilities, and net profits are among the financial statistics contained in a company’s financial statements. When performing ratio analysis, faulty financial statements might lead to erroneous or erroneous data. Therefore, before beginning a ratio analysis, make sure that all of the financial data on the company’s financial statements is valid. Failure to do so can lead to poor company decisions that affect overall profitability. In addition, The price of goods and services rises over time with inflation. Since inflation increases, cash value falls as more cash is needed to acquire the same goods. The inflation rate changes based on the economic circumstances. Inflation adjustment is needed in the examination of ratios since the cost of products and services might vary as soon as a company has completed collecting relevant data (Trivedi, 2018). Failing to make these adjustments results in inaccurate data from the moment the accountant finishes the company’s ratio analysis.
The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets. Google quick ratio has decrease the pass recent years. In 2016 the company ratio was 6.27. However, in 2020 the company ratio went down by three points leaving it at 3.07. To further explain, The higher the ratio, the better, meaning that Google is able to cover its current liabilities with its current assets. For example, Google 2016 current ratio means that for every $1 of current liability, Google has $6.2 of current assets, indicating that the company’s overall liquidity is very good. Google quick ratio has decrease however the company still has a good position where they can pay their short term obligation. The accounts receivable turnover ratio is an accounting statistic used to estimate a company’s performance in collecting its receivables or money owed by clients. A high turnover percentage of receivables may show that an enterprise is efficient in collecting accounts receivable and that a large number of quality clients pay their obligations fast. To illustrate, Google turnover ratio since 2020 to 2016 average around 5.87 which mean that the company is efficient collecting what clients own to the company. To further explain, A high ratio may also signal that when it comes to giving loans to its clients, a business is cautious. Conservative credit policies may help since they can assist prevent the firm from offering credit to clients that cannot pay in due course.
Refrence
Leach J. C., & Melicher R. W. (2014). Entrepreneurial Finance. [VitalSource Bookshelf]. Retrieved from https://online.vitalsource.com/#/books/9781305156180/
Journal, W. (n.d.). GOOG | Alphabet inc. cl C annual balance sheet – WSJ. Retrieved June 01, 2021, from https://www.wsj.com/market-data/quotes/GOOG/financials/annual/balance-sheet (Links to an external site.)
Trivedi, G. (2021, April 01). Inflating equity: Inflation’s impact on financial statements and roe. Retrieved June 01, 2021, from https://blogs.cfainstitute.org/investor/2018/06/04/inflating-equity-inflations-impact-on-financial-statements-and-roe/
second classmates post:
Arthur Mccall
Financing the Entrepreneur 3353
Discussion # 6
Valero Energy Corporation
The company I identified at Hoovers.com is Valero Energy Corporation. A significant player in the petroleum refinery industry. The company has been in business for over three decades and shows no sign of losing its solidified spot as a powerful player in the business. In the last three years, Valero Energy has had a decrease in revenue. The company has not been able to recover itself from drastic decline since 2018. The total revenue for all three years was $ 117,033 million in 2018. $108324 million in 2019 and $64912 million in 2020. (Valero Energy Corporation Company Profile: San Antonio, TX: Competitors, Financials & Contacts – Dun & Bradstreet).
liquidity ratio
The Liquidity ratio examines how quickly a company can pay its short-term obligations, usually monthly or quarterly. (Entrepreneurial Finance Part 2: Chapter 5 p.168). Valero Energy Corporation is a business that can distribute money to account payable or short-term obligations because it can generate income often with its operations model. Valero ended the first quarter of 2021 with $14.7 billion of total debt and finance lease obligations and $2.3 billion in cash and cash equivalents. The debt to capitalization ratio, net cash, and cash equivalents, was 40 percent as of March 31, 2021. (Valero Energy Reports First Quarter 2021 Results).
Profitability and efficiency ratio
The Profitability and efficiency ratio elaborates how precisely a company can sustain its expenses and utilize its assets. (Entrepreneurial Finance Part 2: Chapter 5 p.176). A company like Valero Energy Corporation will be able to generate growth with the proper strategies that are aligned with its objective because of its essential products used by many every day (Transportation & Logistics)
Leverage ratio
The Leverage ratio indicates how an organization has accumulated and how swiftly it can generate revenue and repay the obligation(Entrepreneurial Finance Part 2: Chapter 5 p.172). Many companies, especially new companies, need to inquire about start-up capital to complete the first stage of operation. Without loans or other means of wealth, they could not generate additional money to pay back obligations. Even successful companies still have short-term and long-term debt. That has to be paid within a certain amount of time before they could record revenue. Valero Energy Corporation also has obligations even though they are a multi-million dollar company. Expanding and innovative strategies like mergers and partnerships deals where they need large amounts of capital that they have to borrow to complete sales. (Valero Energy Corporation and Valero Energy Partners LP Announce Completion of Merger). Companies can borrow large amounts because of their net worth. The quick way to pay back capital is to generate more money.
Transportation & Logistics. Valero. (n.d.). https://www.valero.com/refining/transportation-logistics.
Leach J. C., & Melicher R. W. (2014). Entrepreneurial Finance. [VitalSource Bookshelf]. Retrieved from https://bookshelf.vitalsource.com/#/books/9781305156180
Valero Energy Corporation and Valero Energy Partners LP Announce Completion of Merger. Valero Energy Corp. – Valero Energy Corporation and Valero Energy Partners LP Announce Completion of Merger. (n.d.). https://investorvalero.com/news/news-details/2019/Valero-Energy-Corporation-and-Valero-Energy-Partners-LP-Announce-Completion-of-Merger/default.aspx.
Valero Energy Reports First Quarter 2021 Results. Valero Energy Corp. – Valero Energy Reports First Quarter 2021 Results. (n.d.). https://investorvalero.com/news/news-details/2021/Valero-Energy-Reports-First-Quarter-2021-Results/default.aspx.
Valero Energy Corporation Company Profile: San Antonio, TX: Competitors, Financials & Contacts – Dun & Bradstreet. Company Profile | San Antonio, TX | Competitors, Financials & Contacts – Dun & Bradstreet. (n.d.). https://www.dnb.com/business-directory/company-profiles.valero_energy_corporation.40452cd6b4ae77bc142d2439313fdc07.html.
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