First Investments, Inc.
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FIRST INVESTMENTS, INC.:
ANALYSIS OF FINANCIAL STATEMENTS
CARLOS VILLICANA
THURSDAY OCTOBER 23RD, 2014
MACC 6753 - FINANCIAL STATEMENT ANALYSIS
DANA MCLENDON, MBA
WEEK 2
EXECUTIVE SUMMARY
Basic Industries is a diversified multinational corporation with major shares in various electric related markets. There is stock that has been held since the early 1980s and we have been asked to analyze and evaluate the past 10 years of data to either sell or continue holding the shares. We have also been asked to closely compare years 1993-1994 and not include the strike years 1989-1990.
Through my analysis, I found that Basic Industries should hold on to the stocks. This can be backed up with several ratios and analysis for it, like the following:
Equity turnover is the highest during 1994, following the trend in increase. If this continues then the company will keep producing more and more revenue with the investments.
Asset turnover is also the highest in 1994, and also if this continues (which according the trend it should) there will be a bigger increase in the reflection of the total assets being efficiently used to produce revenues.
Lastly the equity multiplier is showing its highest value in year 1994. Reflecting the increase in how efficiently shareholders' equity is being used to make assets.
All the ratios above come from the DuPont formula, the formula that is used to find Return on Equity. So in theory ROE should be at its highest during the year of 1994. This is not the case due to the decrease in net income and profit margin. This decrease can be best explained by the increase in the interest expense ratio, causing the yearly interest expense to be higher and higher. From our net income sheet, we can see that when there are more expenses, there is less net income - ultimately leading to a drop in Equity. Return on Equity will take a hit from this higher interest expense each year.
If the company wants to increase
FIRST INVESTMENTS, INC.:
ANALYSIS OF FINANCIAL STATEMENTS
CARLOS VILLICANA
THURSDAY OCTOBER 23RD, 2014
MACC 6753 - FINANCIAL STATEMENT ANALYSIS
DANA MCLENDON, MBA
WEEK 2
EXECUTIVE SUMMARY
Basic Industries is a diversified multinational corporation with major shares in various electric related markets. There is stock that has been held since the early 1980s and we have been asked to analyze and evaluate the past 10 years of data to either sell or continue holding the shares. We have also been asked to closely compare years 1993-1994 and not include the strike years 1989-1990.
Through my analysis, I found that Basic Industries should hold on to the stocks. This can be backed up with several ratios and analysis for it, like the following:
Equity turnover is the highest during 1994, following the trend in increase. If this continues then the company will keep producing more and more revenue with the investments.
Asset turnover is also the highest in 1994, and also if this continues (which according the trend it should) there will be a bigger increase in the reflection of the total assets being efficiently used to produce revenues.
Lastly the equity multiplier is showing its highest value in year 1994. Reflecting the increase in how efficiently shareholders' equity is being used to make assets.
All the ratios above come from the DuPont formula, the formula that is used to find Return on Equity. So in theory ROE should be at its highest during the year of 1994. This is not the case due to the decrease in net income and profit margin. This decrease can be best explained by the increase in the interest expense ratio, causing the yearly interest expense to be higher and higher. From our net income sheet, we can see that when there are more expenses, there is less net income - ultimately leading to a drop in Equity. Return on Equity will take a hit from this higher interest expense each year.
If the company wants to increase