Ratio Analysis And Statement Of Cash Flows Paper

Ratio Analysis and Statement of Cash Flows Paper

Operating Profitability

When looking at the operating profitability of Collegiate Funding Service and H&R Block we will be comparing the 2004 and 2005 financial statements. In 2005 H&R Block made total revenue of $4,420,019. In 2004, H&R Block made total revenue of $4,247,880. Looking over the past couple of years it seems that H&R Block's revenue continues to increase each year. The majority of the revenue comes from H&R Block's tax services, Mortgage services, and Business services. Only $242,392 came from Investment services and Corporate in 2005. Collegiate Funding Service made $162,337 in 2005. However, in 2004 Collegiate Funding Service made revenue of $198,386 which is a difference of $36,049 from the year prior. Collegiate Funding Service makes the majority of its revenue from interest, income and processing fees. In 2004, the interest income and fees accounted for $199,341 of the total revenue. Both H&R Block and Collegiate Funding Services have continued to make a profit for their organizations.

Asset Utilization

Asset Utilization is the measure of the difference between what an asset is capable of producing and what it actually produces. (Ellis, 2006) One way to measure asset utilization is to use a current ratio. Current ratio measures the company's ability to cover the current debt with the current assets. A ratio of one or higher shows that a company has enough assets to cover the current liabilities. A company that has a ratio below one may not have the assets necessary to cover the debt if bankruptcy were to occur. However, companies need to make sure that that number does not go too high because it could mean that they have too much idle cash and should be investing. The current ratio for H&R Block in 2004 was 1.20 and 1.39 in 2005. These numbers show that H&R Block's assets are greater then the debt. Collegiate Funding Services ratio for 2004 was .99 and 1.004 in 2005. In 2004, Collegiate Funding Services did not have enough assets to cover the company's debt. This number was improved

in 2005 due to either asset increasing or debt was paid off. In 2005 the current ratio shows that Collegiate Funding Services are now able to cover the company's debt with the company assets. Another great ratio to watch for is the companies Asset turn-over ratio. The asset turn-over ratio is the company's total sales divided by the company's average total assets. For H&R Block in 2004, their asset turn-over ratio was: 4,247,880/ 5,426,179 = .782. For the year 2005: 4,420,019/ 5,636,268 = .784. As we can see, the ratios fluctuate at a very small percentage for the years 2004 and 2005. This shows their asset turn-over rate stays about the same with minimal changes.

Risk Management

Collegiate Funding Services must consider several factors of risk when loaning out money to different individuals, organizations, universities and so forth. Risk is a major option for whether the service will be successful or fail due to inappropriate behavior. Collegiate Funding Services first had to truly understand what kind of financial risk the organization would be part taking of. Below is a clear definition of financial risk management. Exposing some of the different risk possible within Collegiate Funding Services will be a task discussed in this section. This section will also compare the risk management between H&R Block and Collegiate Funding Services. To see just how each organization would fare when facing difficult decisions.

Financial risk management is the practice of creating value in a firm by using financial instruments to manage exposure to risk. Similar to general risk management, financial risk management requires identifying the sources of risk, measuring risk, and plans to address them. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.

When keeping Risk Management under control an extremely useful ratio is the total debt ratio. This ratio will help a company track their debt over time and see where improvements and changes should be made to keep the company from reaching dangerous debt levels. The total debt ratio is found with the following formula: total liabilities divided by the total assets. For H&R Block in 2004 there ratio looks as follows: 1,552,684/ 5,426,179 = .2861. For the year 2005: 1,694,775/ 5,636,268 = .300. As we can see from these two ratios H&R Block keeps their total debt at low ratios. The only problem is that we can see the ratio is slightly rising between 2004 and 2005. Even though this ratio climbed a small percentage, it is still something to keep their eyes on before this ratio becomes out of control.

Cash coverage ratio Market Value Added

Value of firm - book value = equity capital invested

Payout