Financial Analysis Essay

1195 Words Apr 16th, 2012 5 Pages
Rachelle Stanley
Columbia College
FINC 350

A firm’s performance and financial situation is measured by financial ratios. In order to reach these ratios a financial analysis must be done on the company’s financial information. Financial analysis is the evaluation, selection and interpretation of financial data to assist in investment and financial decision-making. Financial data is drawn from many sources however, the primary source is data that is provided by the company in its annual reports. These annual reports consist of the income statement, the balance sheet and the statement of cash flows. Financial ratios can be used to analyze trends and compare the firm’s financial standing to those of other firms. Financial ratios are
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Target’s lower quick ratio indicates that it can turn over its inventory at a faster rate than JCPenney. However, JCPenney ratio is increasing every year which means they are experiencing solid growth, quickly converting receivables into cash and easily meeting financial obligations.
Price/Earnings Ratio and Earnings Per Share
The P/E ratio is one of the most important ratios because it will tell you about a company’s earnings and value. The “P” stands for price which is always easy to find and the “E” stands for Earnings. To calculate the P/E you will need to divide the current stock price by earnings per share, also called EPS. This ratio is a look at the company’s investment strategy in the current market and tells its value or growth orientation. Also known as the

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