INTERNATIONAL FINANCE MANAGEMENT

International Finance Management



International Finance Management

Introduction

Question -1: Pearson Plc ratio calculation

Analysis of Profitability Ratios (for calculation - see appendix)

Profitability ratios of the company indicates its ability of generating income, and thus after calculating the profitability person Plc it was observed that company has the potential of generating comprehensive income from generation of sales. For instance, asset turnover ratio of the company also indicates that company is not able to take advantage of its assets in generating income, as its assets turnover ratio for 2011 was 0.54:1 and it further decline to 0.45:1, moreover, this ratio is indicates that company is performing way below the industry average. On the other hand, company is also not able to generate income from his shareholders, as its return on equity also declines from 2011 to 11.67:1 to 5.61 in 2012. Moreover, Pearson plc's book value per share was 7.42 in 2011which also decreased to 7.05 in 2012. The cash flow per share of Pearson plc in 2011 was 1.09; this was due to the financial crises and the cash flow per share in 2012, which decreased to 0.96. This shows a considerable decrease because investors' equity is declining, thus affecting the shareholders wealth.

Liquidity Ration Interpretation (for calculation - see appendix)

Liquidity ratio is calculated by the company to analyze its liquid position and its ability of paying off short-term obligation. Moreover, shareholder and other stakeholders of the company before investing in particular are observed of conducting in-depth analysis of its liquid position. Meanwhile, after calculating the liquidity ratios of Pearson Inc it was observed that company liquidity position is very strong

For instance, current ratio of the company for during the analyzed period was 1.45:1 in 2012, and 1.83:1. Despite of slight decrease in the current ratio from the preceding year, it indicates that company is strongly positioned to pay of its short-term liabilities using assets that can be easy liquidates. On the other hand, company also witnessed slight decline in the quick ration as in 2011 is 1.32:1, and in last fiscal year it drops to 0.97:1. This decline is a worrying sign for the company, as it indicates that company was very dependent of inventory and other assets to pay of its short-term obligation and after removal of such assets company might face problems in paying of its short term liabilities.

Analysis of Efficiency Ratios (for calculation - see appendix)

These ratios indicate company ability of effectively using its assets and liability for its internal business operations. During the analysis of person Inc, it was observed that company has not able to handle its assets and liabilities. For instance, daily sales outstanding ratio indicates that Company after completion of sales takes more than two months to collects its revenues from customers and this means the customers are taking advantage of company leniency and this could lead towards fraud and probable loss to the company. Similarly, day's inventory turnover of the company during 2011 was 6.28, and in 2012, it was ...