Assignment 2: Discussion—Using Ratios to Measure a Company’s Performance

Ratio analysis is a method used to analyze the financial reports of a company and interpret trends in the company’s performance. As a nonaccounting manager, you use numerous ratios to analyze your company’s performance year-by-year and benchmark the performance to industry averages, to an individual competitor’s performance, or against a predetermined target.

In this assignment, you will determine the specific ratios used to measure a company’s performance, using the example of Compnet International. Do not compute any actual ratios as this will be completed in Module 3.

Note: You will apply your learning from this assignment to calculate these ratios for Compnet in the M3: Assignment 2.

Tasks:

Consider the following scenario for this assignment: You are an external investor who is considering Compnet as one of the potential companies for investment.

Referencing the list of ratios from your assigned readings for this week, respond to the following:

1. What information does ratio analysis provide for meeting the requirements of the scenario?
2. Which ratios are the most important, and which ones are of limited value? Justify your choices for the scenario.
3. Why do you need to compare:
   • The current year ratios with the prior year ratios?
   • The ratios of competitors in the same industry or some other benchmark?
4. Other than the computations used in ratio analysis, what else is necessary to properly analyze a company for investment?

Submission Details:

By Monday, January 18, 2016, post your response to the appropriate Discussion Area. Through Wednesday, January 20, 2016, review and comment on at least two peers’ responses.

Write your initial response in 300–500 words. Your response should be thorough and address all components of the discussion question in detail, include citations of all sources, where needed, according to the APA Style, and demonstrate accurate spelling, grammar, and punctuation

Do the following when responding to your peers:

• Read your peers’ answers.
• Provide substantive comments by
  • contributing new, relevant information from course readings, Web sites, or other sources;
  • building on the remarks or questions of others; or
  • sharing practical examples of key concepts from your professional or personal experiences
• Respond to feedback on your posting and provide feedback to other students on their ideas.
• Make sure your writing
  • is clear, concise, and organized;
  • demonstrates ethical scholarship in accurate representation and attribution of sources; and
  • displays accurate spelling, grammar, and punctuation.

Grading Criteria