Financial Ratios- Disney Stock
The current is the selected financial ratio discussed in this post. Notably, the current ratio is used to assess a company’s financial performance regarding its liquidity position. Specifically, the current ratio analyzes a firm’s ability to pay its short-term and maturing obligations when they fall due (Arsyad et al., 2021). The current ratio for Disney Company is calculated using the company’s balance sheet information. In the calculation, recent information regarding current assets is compared to the company’s current liabilities through division. The current ratio of the company was 1.1, given by:
Disney current ratio = Total current assets ÷ Total current liabilities
- = 32,913 ÷ 30037
- = 1.10
The current ratio implies different aspects of the organization. First, it indicates a good financial performance for Disney because the company can fully pay its current liabilities using existing assets. However, it does not show excellent financial performance compared to the generally accepted industry value for the current ratio of two. Notably, industry ratios vary from one industry to another, and as a result, considering the industry in which a firm operates when conducting ratio analysis is essential (Winn & Martindale, 2020). Second, the ratio provides a sense of the company’s operating cycle.
If the ratio is low, the company may have difficulties receiving its account receivables in time and may face liquidity problems. It is important to note that other ratios help confirm the assertion made based on the current ratio. For instance, a quick ratio should be calculated to enhance the liquidity outlook because it refines the current ratio only considering the most liquid assets. Further, the inventory turnover ratio may be calculated to determine how many times those account receivables should be paid within a year.
Arsyad, M., Haeruddin, S. H., Muslim, M., & Pelu, M. F. A. (2021). The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), 36-44.
Winn, T. L., & Martindale, T. (2020). Key Business Ratios. Journal of Business & Finance Librarianship, 25(1-2), 92-97.
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This week, you’ll review a balance sheet and income statement and then calculate common financial ratios to evaluate the company’s financial performance. These are simple formulas, but they may seem intimidating. In most instances, the calculations are simple and can be automated in spreadsheets. However, for this discussion, you’ll want to perform the calculations yourself.
Choose 1 financial ratio that you will need to calculate for this week’s assignment. Try to choose a ratio that has not been chosen by another student.
Choose 1 publicly traded company and review the most recent balance sheet and income statement for a company whose reports are posted on a website, such as Yahoo Finance.
Calculate the financial ratio you selected for the company you chose.
Respond to the following in a minimum of 175 words:
What is the ratio you chose? Explain what this ratio means.
What were the results of your calculation? Show your work to the class, including the formula you used, the data you input for your calculation, and the company name in your response.
What might you infer about the company’s financial performance as it relates to this ratio?
Which other ratios might you find helpful to confirm what your original ratio calculation told you?
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