Learning Activities

Activity 1: Financial & Ratio Analysis

Case 1. The financial details of EEP Company are shown in the table below. As an
investor, you are going to conduct an analysis and discover the specific reasons for the
stock prices to deteriorate from year 2016-2019. Cite your observations and present
facts and reasons based on the figures presented.
2019 2018 2017 2016
Dividend per share 1.64 1.60 1.44 1.28
Payout Rate 54.13 66.12 39.64 39.75
(DPS/EPS)
Earnings per Share 3.03 2.42 3.63 3.22
Book Value per Share 19.20 17.70 17.93 15.67
Rate of Return on 15.9% 13.6% 20.3% 20.4%
Equity
Effective Task Rate 67% 50% 61% 39%
Rate of Return on 13.20% 14.90% 17.2% 18.1%
Asset
Profit Margin (EBIT 7.7% 8.3% 9.9% 10.3%
sales)
Gross Profit Margin 57.5% 56.1% 53.9% 52.6%
Total Asset Turnover 1.70% 1.79% 1.73% 1.75
Financial Leverage 1.59% 1.54% 1.47% 1.39
(total Debt/Equity)
Effective Interest Rate 6.5% 6.8% 6.3% 6.3%
Stock Price (at year end 51 50 50 36
on March 31st)

Below the EEP Company's financial reports indicate a positive outcome. The higher the
demand for stock than the sale, the greater the individual to purchase, as each year the
stock price from 2016-2019 goes higher. In addition to demand itself the stock price also
goes higher. However if the demand for the stock declines relative to the supply, the
stock also decreases. Except the others, which are the Total Asset Turnover, the Asset
Rate of Return and the Equity Rate of Return, the details show an increase in the
outcome of each measure. The higher the asset turnover ratio, the more successful the
company is at generating income from its assets, as in the general asset turnover ratio.
Therefore if the business has a low degree of asset turnover, it cannot efficiently use the
assets to produce revenue.
 Case 2. As financial analyst, a client approached and asked you to examine financial
data from three (3) company. Emily, the client, wants to invest in one of the three (3)
companies. However, she is very specific about the current financial position of the
company and firmly believe that no company should be considered for investment
unless it has a good current financial position. Thus, from among the companies
presented, you need to choose a company for her. Prepare a short-company analysis
citing facts related to the financial data and how did you come up with such decision.
Current Financial Analysis of E, F, G Companies
E F G
Ratio 2017 2018 2017 2018 2017 2018
Current Ratio 3.1 3.5 3.0 3.26 3.71 3.53
Acid Test Ratio 2.27 4.42 2.50 2.50 2.90 2.76
Composition of Current
Asset
Cash 14 14 30 30 35 35
Receivables 39 37 27 27 34 33
Inventory 46 48 36 36 32 32
Other Current Asset 5 5 11 11 3 4
Net Sales to Inventory 4.90 4.77 5.23 5.23 6.65 6.25
Net Sales to Working 4.29 3.97 3.81 3.81 3.87 3.85
Capital

I should select company F for the results of the companies because it has the positive
result of the three companies. Both are high in the minimum value set above the
minimum value set at 1.32, but the rate of Company G falls from 3.71 years 2017 to
3.53 years 2018 and the current level of Company E is 3.1 to 3.5. There is also a benefit
for the customer when it comes to the new rate ration of the business F.