Question

"Investment Strategy"  Please respond to the following:

• From the e-Activity, evaluate at least two companies’ financial statements that have received a negative rating from one of the financial rating agencies. Determine which financial ratios most likely impacted the rating decision. Compare and contrast at least two financial ratios that support the rating agency's claims. Speculate on how the ratios are likely to change considering the economic environment in which it operates. Support your position.
• Imagine that you are a chief financial officer with $150,000 of idle cash that you must invest to increase earnings for your company. Select at least two companies and the ratios you would use to determine your investment strategy. Based on the companies you choose, speculate on how the ratios are likely to change over the next five years.

Answer 1

Before investing in any company this is important that the ratios that shows the financial results are considered. There are many rations that can be considered for making the investment, However we will be considering some of them for making our investment decision.

Price to book value

We consider to calculate this ratio to check the difference between the book value of the company and the market value of the company. This ratio is important to calculate because this ratio reveals the price gap that is important to know before investing.

Debts to equity

This ration shows the level of leverages, this means that how much of debt is taken for each rupee of shareholder equity.

Profit margin ratio

This ration shows the GP ration that has been earned from the operational activities.

Price Earning growth ratio

This ratio shows the relationship between the company price of stock, earning per share and the growth of the company.

Return on equity

Return on investment or return on equity means that how much the shareholders are earning from each Dollar invested in the business. This ration is important because this shows the income that is with the company.

Hence the above ratios can be considered before making an investment.