Question

RESEARCH PART II FIN II From the data obtained in Research I. • Trend Analysis o Risk analysis . Business risk: • type of industry, • the variability of the firm's operating income over time (sales variability, and operating leverage) o Financial risk Uncertainty of acquiring debt, the acceptable level of financial risk for a firm depends on its business risk • Debt ratios: debt-equity ratio, long-term debt/total capital ratio, total debt ratio • Interest coverage Cash flow coverage ratio, cash flow-long term debt ratio, cash flow/total debt ratio O External liquidity risk (determinants of market liquidity) . Comparing the market data with the companies data Share calculations o Risk analysis . Business risk • type of industry, • the variability of the firm's operating income over time (sales variability, and operating leverage) O Financial risk • Uncertainty of acquiring debt, the acceptable level of financial risk for a firm depends on its business nisk • Debt ratios: debt-equity ratio, long-term debt/total capital ratio, total debt ratio • Interest coverage Cash flow coverage ratio cash flow-long term debt ratio, cash flow/total debt ratio P AR

Good night, I have this second part of a research paper for my Finance class but I do not understand what I should do or know how to start. Could you help me? Thanks a lot. By the way the work is from the Dell and Lenovo companies.

Answer 1

The research project asks you to do the trend analysis and share calculation and certain ratio analysis. If you have already collected the data then the better way to get started is just go to any financial terminology website and familiarize yourself with the broad terminology like business risk, operating leverage and other key ratios. The benefit of doing that would be you will also get to know the formula for calculating different ratios. Another way to understanding about the business risk would be download the financial statement and go through the Management discussion and analysis section of the report (MD&A). In this section senior management discusses the broad level of risk associated with the business and how they plan to deal with that. For understanding the financial risk, you will be required to calculate the ratios like debt/equity, interest coverage ratio and compare with the Industry average ratio. If the level of debt in a company is very high compared to the industry then it is not very good scenario. You can look at the Interest coverage ratio to make sure whether the firm is generating enough income to pay its interest and compare it with what is the Industry standard. For external market liquidity risk, you would have to look at market in general and other companies in the Industry.