Constructing Pro-Forma Statements (Heartland Express) Term Paper

Constructing Pro-Forma Statements (Heartland Express) - Term Paper Example e income taxes 53,264 26,833 13,617 26,833 Federal and state income taxes 9,350 9,350 9,350 9,350 Net income 43,914 17,483 4,267 17,483 FINANCIAL STATEMENT ANALYSIS THROUGH RATIO ANALYSIS A method widely used by the investors and analyst in order to evaluate and analyze the financial history of the company is the ‘Ratio Analysis’. Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility. The ratios can be divided into various categories such as profitability, gearing and liquidity, each focusing on a different area of the financial outlook of the organization and highlighting the company’s performance. The financial analysis of Heartland Express is divided into three main categorize namely Pr ofitability, Liquidity and Gearing. Profitability Ratios    2011 2010 2009 2008 2007 2006    Profitability Ratios Gross profit margin 20.16% 18.31% 17.18% 15.66% 18.66% 21.58% Net profit margin 20.30% 18.59% 17.69% 17.12% 20.40% 23.63% ROCE 31.50% 27.79% 22.11% 29.74% 35.22% 27.30% EPS 0.78 0.69% 0.62 0.73 0.78 0.89 Gross profit margin is an analyzing tool which assists in identifying how effectively and efficiently the company is utilizing its raw materials [1], variable cost related to labor and fixed costs such as rent and depreciation of property plant and equipment. The gross profit margin analysis of the last five years shows that subsequent to the financial year 2006, the gross profit margin declines. Though the sales of the company kept on increasing subsequent to the financial year 2006, but the... The liquidity ratio measures the company’s ability to pay its short-term liabilities. The ratio illustrates that how quickly a company can convert its assets into cash and cash equivalent in order to pay off its short-term liabilities. The most commonly used liquidity ratio, the current ratio, which is calculated by comparing the current assets and current liabilities. The strengthened the current ratio the more ability the company has to pay its debts and short-term obligations over the next 12 months. An overall analysis of the ratio would portray that in all the years the company had enough assets to pay off its obligations and debts. In the financial year 2007, the current ratio decreases from 3.35 to 2.91 due to the decrease in the current assets of the company by a staggering 32% which majorly pertains to the decrease in the short term investment from 322 million to 186 million. The cause of the decrease in the current ratio for the financial year 2008 also pertains to t he massive decrease in the short term investment. The reason for this decline is during that particular period, the equity shares market was going through its worst time. The companies rather than recording losses on market to market of these securities started selling these securities in the stock market. The acid test, which is also regarded as the quick ratio, is calculated by subtracting the inventory balance from the total current assert balance. Out of the current assets mentioned, inventories are regarded as the one which takes comparatively more time to be converted into cash or cash equivalent. The acid test ratio has followed the same trend as the current ratio.

How to take a risk in a business Essay Example | Topics and Well Written Essays - 1250 words

How to take a risk in a business - Essay Example It is therefore imperative that to launch a business, risk taking must be embraced and this involves getting out of the comfort zone with an intention of triumphing both economically, socially and technically. All businesses in the current competitive world should take charge of their operations by specifying their target and their plans. This piece of writing offers detailed information on how businesses take risks and the risk taking processes. Various kinds of risks that affect most businesses are strategic risk, compliance risk, financial risk, operational risks, and reputational risks. Risk taking is simply opening oneself to change , honest appraisal of a situation, understanding the risks involved in taking action, weighing the pros and cons of taking the action, making a choice to take the required action and performing the action with full consciousness of the potential outcome. it further requires that a risk taker should accept the consequences of the action taken, ignore others approval in order to make the most appropriate risk, pursue the required action without fear of it affecting others negatively and committing to become an objective in pursuing a rational approach to the problem (Mankiw 605-610). It is especially important to pursue risky decisions to avoid some of the possible regretful situations such as lost business opportunities, avoiding something that one is passionate about, lost market share, outdated technology and finally lose of potential management team. The process of taking business risks starts with carefully calculating the risks by thinking about what the potential risk might be. Calculating risks greatly helps in minimizing some of the most dangerous decisions that may lead to the closure of the business. It is important to identify the risk you want to take and this requires massive intelligence and experience. Gather enough information concerning the risk you are just about to take by determining the most risky activities . Maximize on the actions that you know more about and keep away from the actions you know least about. Risk calculation should be aimed at taking an action that will solve long-term problems. Calculating risks involves consideration of how likely is a situation thus involves the probability and the overall cost of taking the risk. Risk exposures which can be used to prioritize risk, risk reduction leverage that calculates the return on investments are some of the formulas used (Mankiw 605-610). Another important step in risk taking process is minimizing the risks as much as possible by gathering enough information on how to do it. Risk minimization may require categorizing of the type of risk such as industrial changes or financial risks and list specific events and sources unique to the possible actions and list the probable consequences in dollar terms. Calculate each item in 1 to 5 point scale and the consequences that may remain completely vulnerable to the risk. After calculat ing all the costs of various risks, prioritize all the risks from the less costly to the more costly. The period predicted resources required such as financial support that is required to implement the project must be carefully calculated. However, the cost benefit analysis should be taken into consideration by considering the possible benefit that may be earned by taking the risk and the anticipated cost of the risk. Only a few of resources should be risked at once in order