1 Course Project: Financial Ratios Fnu Mohammed Fahad Jeannie Goodwin Trine University Corporate Finance 04/08/2022 2 Course Project: Financial Ratios Institution: Red Cross There are four sorts of financial ratios that should be used to assess financial stability. Liquidity ratios are one of the sorts that should be employed. Liquidity ratio assesses an organization's capacity to satisfy current financial obligations. The current ratio is one of the liquidity ratios that evaluate an organization's capacity to satisfy its current financial commitments using current assets (Markonah et.al, 2020). Red Cross current ratios for the years 2019 and 2020 are (877,724/ 453,056 = 1.94) and (1,002,677/ 466,826 = 2.15) correspondingly (RED CROSS Consolidated Financial, 2020). This means that for every dollar owed to current creditors, the business has 1.94 and 2.15 dollars in current assets, indicating that it is in a solid liquidity position since it can satisfy its current financial commitments using current assets. The quick ratio, which assesses a company's capacity to satisfy urgent financial commitments with current assets, is another measure of liquidity. The organization's quick ratios are (877,724 – 38,800/ 453,056 = 1.85) and (1,002,677 – 46,998/ 466,826 = 2.05) in 2019 and 2020, respectively (RED CROSS Consolidated Financial, 2020). For every dollar owed to current creditors in the last two years, the organization has 1.85 and 2.05 dollars in immediate current assets. As a result, the company is in good financial shape and can satisfy its existing financial commitments using current assets. Because the suppliers are confident in their capacity to satisfy their present financial obligations, they will be able to get raw materials on credit to accomplish their operational goals (Tumanggor, 2020). 3 Other financial measures to consider when assessing an organization's financial condition include leverage ratios. They assess financial risk by calculating the likelihood of a company failing on its long-term financial obligations (Simko, n.d). The debt-assets ratio is one of the leverage ratios that gauges the proportion of debt used to acquire an organization's assets. As a result, the organization's debt-to-asset ratios in 2019 and 2020 are (537,413/ 3,049,904 * 100 = 17.62%) and (596,132/ 3,266,899 * 100 = 18.25%), respectively. According to these measures, debt financing accounted for 17.62 percent of the firm's asset purchase in 2019, while debt financing accounted for 18.25 percent in 2020. The nominal growth in debt finance over the last two years demonstrates that the company continues to use debt financing to acquire assets. This is necessary for the company to obtain financing from a financial institution at a cheap interest rate because its financial risk of default is decreasing (Husna & Satria, 2019). Another leverage ratio that gauges the usage of equity and debt in financing an organization's assets is the debt-equity ratio. In 2019 and 2020, the organization's debt-to-equity ratios are (537,413/ 1,442,164 = 0.37) and (596,132/ 1,812,215 = 0.33), respectively (RED CROSS Consolidated Financial, 2020). Regarding debt-to-equity ratios for the two years, the business used debt 0.37 times in 2019 and 0.33 times in 2020, compared to its use of the equity in funding its activities. This indicates that the company is increasingly reliant on debt to carry out its operations (Husna & Satria, 2019). According to the financial analysis conducted, the Red Cross organization is capable and viable in achieving its mission and objectives in the future, as seen by its financial ability to cover its present financial responsibilities with relative ease. To respond to emergency circumstances as they arise, the company heavily relies on the credit supply of inventory. A solid financial position that enables the organization to respond to emergencies is critical in 4 persuading donors to extend their donations because of the importance of the aid provided to the community. The increase in donor funds will allow the organization to continue to exist in the future since it will have enough funds to cover its operating costs. 5 References Markonah, M., Salim, A., & Franciska, J. (2020). Effect of profitability, leverage, and liquidity to the firm value. Dinasti International Journal of Economics, Finance & Accounting, 1(1), 83-94. THE AMERICAN NATIONAL RED CROSS Consolidated Financial (2020). Retrieved from https://www.redcross.org/content/dam/redcross/about-us/publications/2020publications/FY20_ARC_audited_financial_statement-FINAL.pdf Tumanggor, M. (2020). The Influence of Current Ratio, Quick Ratio and Net Profit Margin on Return on Assets at PT. Hero Supermarket Tbk. PINISI Discretion Review, 1(1), 137146. Simko, P. J. (n.d) Leverage Ratios in Financial Analysis. Husna, A., & Satria, I. (2019). Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), 50.
