Financial Research Report
For investors and business owners, financial analysis poses significant importance as it evaluates the company’s performance in measureable aspects. In financial analyses financial ratios are considered important in analyzing the position of the company. It analyzes important areas of the business performance such as liquidity ratios, debt ratio, and profitability of the business.
This report aims on financial performance of U.S. based company named Rockwell Collins Inc. This report analyzes the financial performance of the company.
Rockwell Collins Inc.
Base of the Rockwell Collins is with Collins radio since 1933. After 1933, ...view middle of the document...
Financial statement analysis
(Bernstein & Wild, 2000) financial statement analysis on one or more component of organization’s financial status or operating outcomes. Building blocks financial statement analysis are follows:
1. Short term liquidity – organization’s ability to cover its short term commitments.
2. Capital structure and solvency – ability of the firm to meet long term commitments.
3. Return on capital employed – firm’s ability to generate financial rewards to attract and maintain significant investments.
4. Operating performance and profitability – optimizing operational activities in long run. It includes maximizing revenues and minimizing costs.
They further argued that building block to financial statement analysis considers:
1. Objectives related to analysis.
2. Important relation among the building blocks.
For instance, an equity investor might look for return on capital employed or invested because it focus on earning and return analysis. However, investor is to look at other block, because of their influence on specific requirement. But all six block focus on a different side of company’s condition and performance. But they are interconnected with each other and the change in one block may bring significant impact on other block.
Short term liquidity
(Sinha, 2009) Focuses on the importance of short term liquidity, because firm required converting it assets into cash on to meet its due commitments. Meeting commitments on time leads firms to enjoy discounts and profitable advantages. Vice versa, if company unable to meet its commitments creates difficulties in getting profitable opportunities.
Measurement of short term liquidity
Mostly, working capital is to measure short-term liquidity because working capital is an important source for meeting short term commitments. It can be defined as excess of current assets over current liabilities.
A current asset includes cash, cash equivalents, receivables, inventory, prepaid expenses and cost of fixed asset meant for sale. As all stated heads can be converted in a short span of time, therefore categorized in current assets.
Current liabilities are obligations currently due for any organization. Current liabilities are creditors, account payables, tax payables, short term loans, due portion of long term loans, and accrued expenses.
Current ratios define the company position in covering current liabilities with current assets. There are some advantages related to current ratios. First, it gives a clear picture of firm’s current position; the greater ratio indicates firm's stability. Second, it provides a degree of safety against losses; larger ratio means low risk and high safety. Third, it gives the volume of current asset against uncertainty. Despite advantages there are limitations of current ratios, they could not predict future conditions in term of inflows and outflows, it predicts firm condition at a particular time and cannot...