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    For a potential shareholder, several key ratios show declining performance and increased risk, such as decreasing return on equity, interest coverage ratio, and dividend coverage ratio. For a potential lender, the declining interest coverage ratio and dividend coverage ratio also indicate increased risk, while higher ratios for assets, liquidity, earnings per share and return on assets would suggest better ability to repay debts. Both potential investors should examine why several profitability and coverage ratios are decreasing.

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    For a potential shareholder, several key ratios show declining performance and increased risk, such as decreasing return on equity, interest coverage ratio, and dividend coverage ratio. For a potential lender, the declining interest coverage ratio and dividend coverage ratio also indicate increased risk, while higher ratios for assets, liquidity, earnings per share and return on assets would suggest better ability to repay debts. Both potential investors should examine why several profitability and coverage ratios are decreasing.

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    5 views3 pages

    Fin621 Financial Analysis

    Uploaded by

    Entertainment Status
    For a potential shareholder, several key ratios show declining performance and increased risk, such as decreasing return on equity, interest coverage ratio, and dividend coverage ratio. For a potential lender, the declining interest coverage ratio and dividend coverage ratio also indicate increased risk, while higher ratios for assets, liquidity, earnings per share and return on assets would suggest better ability to repay debts. Both potential investors should examine why several profitability and coverage ratios are decreasing.

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    of 3

    Fin621 financial statement analysis

    Using the ratios calculated above, write a report examining the performance and
    state of the
    business for:
    i. A potential shareholder
    ii. A potential lender
    A potential A potential lender
    shareholder

    Return on equity The ROE tells us the earning For the potential lender, the
    ability of shareholder. In 2021 return on equity is not matter
    the earning capacity of the whether it increases or
    shareholder is decreases up to decreases.
    1.56% from (16.88% to
    15.32%) so this is not good
    sign for the potential
    shareholder.

    Interest Coverage This ratio tell us the company For the potential lender the
    capacity to fulfill all interest interest coverage is very
    Ratio payment on the loan and away important so for the potential
    from bankruptcy in this the lender is sign of risk so the
    company interest coverage potential take his investment
    ratio is decreases form 7 to 5 secure.
    so the company is more risk so
    for potential investor to secure
    her investment

    Dividend coverage The ratio tells us the how many The higher the dividend
    times the company announced coverage ratio the higher the
    ratio the dividend and pay to the capacity the firm fulfill need of
    shareholders. So, the dividend her lender.so the decreases the
    coverage ratio is decreases interest coverage ratio is
    from 2.70 to 2.53 that is alarming situation for the
    alarming point for the
    shareholders. potential lender

    Gearing Ratio The gearing tells us the For the potential lender also
    company how finance from opportunity time and dmend
    debt to equity this also show higher interest rate from
    that the company finance more company
    fund through debts rather than
    equity.

    Current Ratio The quick and current ratio tell The quick and current ratio tell

    Quick Ratio us the company liquidation us the company liquidation


    ratio the higher the lower the ratio the higher the lower the
    company bankruptcy.so this company bankruptcy.so this
    good point for both potential good point for potential lender.
    shareholders.

    Earnings Per Share The earning per share tell that For the potential lender, this
    the EPS is decreases from 27 point is also focusing point.
    to 25 percent so this point is The higher the EPS the higher
    notable for the potential the company pay interest and
    shareholders to act and secure loan payment.
    her investment. The higher the
    EPS the higher the company
    pay dividend

    Price to earnings A higher value of price to For the potential lender the P/E
    earnings ratio generally shows is not matter weather increases
    ratio a greater cost for a lower return or decreases
    So, this also alarming point for
    both company and shareholder
    why the P/E ratio is increases.

    Return on Assets The higher the return on assets The higher the company return
    the higher the company work on assets the higher the
    efficiently so the company company fulfill the loan
    ROA is also decreases that is payment of the lender.
    focusing point for both
    shareholders take action and
    utilize her assets efficiently

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