Homework answers / question archive / The main goal of financial management is to maximize intrinsic stock values for the benefit of society

The main goal of financial management is to maximize intrinsic stock values for the benefit of society

Business

Share With

The main goal of financial management is to maximize intrinsic stock values for the benefit of society. In this regard, special companies, reduce costs by innovative production processes, create value for customers by providing high quality products and services, and create value for employees by training and fostering an environment that allows employees to utilize all of their skills and talents.

Financial Statements provide an overview of the company’s operating results. Well managed companies use their operating cash flows in different ways, to include capital expenditures, acquisitions, dividend payments, stock repurchases, and saving for future needs. Which company made the right choices? Only time will tell.

Investors and managers use financial ratios to analyze financial statements. To this end some of the techniques used are trend analysis, common size analysis, and percentage change analysis. In addition, the financial ratios of a company are tied together in the DuPont Equation. Finally, the ratios are used to compare with other companies in the same industry. James Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position. Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers.

1. Why are ratios useful? What three groups use ratio analysis and for what reasons?
2. Calculate the profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
3. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry?