Interpreting Financial Results Essay

Financial ratios analysis shows the connections concerning the facets of the company’s dealings and delivers to the public the companies’ situation and performance. Financial ratios could offer signs and indications of the financial situation and warnings of possible problem areas. I was assigned the Waste Management Inc. company they the â€Å"leading provider of comprehensive waste management services in North America. The subsidiaries provide collection, transfer, recycling, and disposal services. They are also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States† (SEC.gov, 2013) This paper contains Waste Management Inc. financial reports from the years 2010 through 2013. I used the company’s last four years of balance sheet to calculate and compare numerous financial ratios against the company’s industry benchmarks. Waste Management, Inc.’s statement is separated by three categories; solvency, efficiency and profitability. Due to its complications in the fact that it’s a service industry and not sales industry, some of the figures are different from a sales company. Solvency ratios Current Ratio The current ratio of Waste Management Inc. shows 0.77, 0.80 and 0.83 for years 2011 through 2013.The formula I used is â€Å"cash & bank balance+ acct. receivable year) / total current liabilities of year† (Mergentkbr, 2014). It is trending upward but shows that it’s slight below the industry standard which shows 1.0, 1.0, and 1.0 from 2011, 2012 and 2013. According to our text book, the higher the current ratio the healthier the company becomes. By not meeting the industry standards, this can make investors leave and look for different companies to invest on. Quick ratio The quick ratio shows that in 2011, 2012, and 2013 resulted in .72, .74 and  .77. the formula I used is â€Å"total current assets of year / total current liabilities of year† ( Mergentkbr, 2014) Once again, the trend is on the upswing and the industry median standard is 1.30, 1.40 and 1.30 in 2011 to 2013 which shows that due to its low inventory, the numbers did change as much and that a good thing due to the fact that inventory delays progress. Efficiency Ratios Collection Period (days) According to the data, the collection period during 2011to 2013 are 33.75, 37.43 and 39.40 I used the formula â€Å"account receivable of year *365/ sales of year† (Mergentkbr, 2014), this shows that it’s trending upward but still outperformed the industry standard which shows 36.30, 39.30, and 41.60 from 2011 to 213. Reason for this collection period growing could be as simple as customer size multiplying every year due to population growth. Sales/Inventory (times) According to the data, 2011-2013 sales/inventory shows 42.52, 78.13, and 51.20 from 2011 to 2013. I used the formula â€Å"sales of year / inventory of year† (Mergentkbr, 2014) to calculate for sales and inventory times. As you can see in 2011-2012 there was major spike in the inventory which matches with the industry standards. Industry median standard shows 62.60, 78.40 and 52.20 from 2011 to 2013. In this case Waste Management Inc. is above the industry standard which allows them to have a faster turnaround time and gives flexibility of getting rid of their inventory faster. Profitability Return on Sales According to the data, return of sales 3.50%, 4.30% and 2.30% from 2011-2013, I used the formula â€Å"100* net profit of year / sales of year† (Mergentkbr, 2014). From 2012 to 2013 there’s 2% dip in percentage in return on sales, this coincides with Industry median standards which shows the numbers of 3.40%, 3.90% and 2.40%. The company is right on the industry standard in this case. Return on Assets According to the data, return on assets shows 5.10%, 4.20% and 3.67% from  2011 to 2013, I used the formula â€Å"100*net profit of year / total assets of year† (Mergentkbr, 2014). It is on the down swing and it’s below the industry median standard. Industry shows 5.20%, 3.80% and 3.20%. Summary A financial ratio normally by itself doesn’t mean anything unless benchmarked with other companies in the same industry. It shows how well the business measure up against the competition and also can be a tool to measure growth of the business towards eventual company goals. Ratio analysis, when implemented frequently over a period of time, can assist small companies identify and adjust to trends that affects their procedures. References: http://www.sec.gov/Archives/edgar/data/823768/000119312512065370/d260235d10k.htm http://www.mergentkbr.com.ezproxy.apollolibrary.com/index.php/reports/industry