Please read the following paper on Motorola. You will learn about how financial ratios are used. We understand that this paper is a little outdated but that is O.K. because ratio analysis is used the same way today.
If you do not feel as ambitious to read the Motorola case, make sure to read the much shorter article on financial ratios from Investopedia.
After you read the article, please comment on it with your thoughts. Like we mentioned, you can either comment with your own opinion or on someone else's comment.
http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1025&context=commpapers&sei-redir=1#search=%22use%20ratios%20financial%20analysis%20article%22
http://www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/uses-limitations-ratios.asp#axzz1Xq9azbBn
Hi everyone
ReplyDeleteThe Motorola case was an excellent review of how financial ratios are used and compared with their respective industry. Their two money makers are telecommunications and semi-conductors. Motorola needs to control their operating costs more, because the ratios show that they are inefficient in generating profits from its sales, because of their lower ROE, which is -22.11%. Also Motorola generated $31.191M w/ 110,000 employees which equals .27M per employee. This is low next to their competitor Nokia, which generated $27.645M w/ 53,800 employees yielding .53M per employee. They need to become more efficient.
I liked how the researchers talked about synergy within their six operating segments. Seems like Motorola was getting too big to handle during this time.
Also I liked the "free cash flow hypothesis" which states that "bad investment decisions are often made in presence of a large amount of free cash flow." These comes into play, because Motorola increased LT debt 85% from 2000 to 2001. So their debt/equity should be further examined. Also they are sitting a lot of cash, which is not generating any profits, so there are questions to their capital structure.
The Investopedia article was a good overview of what financial ratios actually do and how there are so many strategies in order to get the information that will help. The most interesting part of this article was how there are so many different ways to find the information and different circumstances where the information that was just found may no be a correct source to use, there are indeed limitations to financial ratios.
ReplyDeleteThe Investopedia made some very interesting points! One of the most interesting was that ratios are not so dependable as they seem to be. Quite the opposite from what we learned in class! Although sometimes they can be accurate, it depends on the information given and if it was misinterpreted. As the article mentioned, ratios have an affect on one another. The example that the article gives is that inflation distorts a company's balance sheet, which in turn is continued to be seen on the ratio analysis of profits. It almost seemed as if the company itself formed a domino effect, due to the fact that everything in the company effects something that is seen on either the balance sheet or even another ratio.
ReplyDeleteI found the Investopedia article very interesting and feel that it made some good points. Although is true what Lauren and Zack said about the ratios, that could be misleading in some ways or could be inaccurate for many reasons; what I got about the article is the opposite, that if this ratios are used intelligently and in the right way they could give you great information. These ratios can be very useful in comparing the company with other companies and also to predict how a company would do in large periods like recessions.
ReplyDeleteInvestopedia had very good information on financial ratios. Ratios are very practical when comparing companies or predicting the future of the company. Ratios are not useful when they are not compared to anything. The article gives examples like the industry norm and it’s the most frequently used when comparing. A good example of stock splits and dividends are shown in the article. In the example 2 it talks about when a company declares a 2 to 1 stock split then it doubles the number of outstanding shares of prior months. The article gave me a better understanding of financial ratios and great examples.
ReplyDeleteI definitely found the Investopedia article very informative. It gave me a better understanding of how financial ratios can be used, as well as, the limitations of them. It makes sense how they can be distorted by inflation, seasonal changes, and different accounting practices. It seems that in some ways this could cause a company problems, because of how distorted they can be. This article really helped me see the usefulness of financial ratios and the way that they can impact a company.
ReplyDeleteThe Case of Motorola provided a detailed financial ratio analysis. Along with the segment analysis and industry analysis, the financial ratio analysis helps us understand how those ratios actually work. For example, by looking the DuPont analysis, we can tell a lot about Motorola's overall situation because we can calculate ROE by breaking down the equation in many different ways. Motorola has to control its operating costs such as large variable costs and fixed costs by for instance, increasing its sale revenues. Also, the ROE makes Motorola has to evaluate critically why it has lost its shares in some of its key business over the last several years. That way will positively impact ROA and thus increase ROE. Calculating financial ratios mechanically will definitely not help the company at all. Using it intelligently otherwise brings good effect, thus better decisions.
ReplyDeleteThe Investopedia article stressed the importance of carefully using financial ratios in order to draw valid conclusions. Also, there are many limitations to fiancial ratios as a result of: seasonal factors, infaltion, different industrial divisions...etc. For example, if I were to compare two companies in the phone industry such as verizon wireless and motorola, by way of the "industry norm" ratio; the ratio would be distorted. Verizon wireless is a service provider compared to the manufacturing of phones that motorola does. This article allowed me to increase my knowledge of how financial ratios need to be used properly in order to offer insight.
ReplyDeleteI read the Investopedia article and I'd have to agree with the comments everyone else has made on the article. It was an excellent overview on how financial ratios provide information to a company to allow them to predict the future of such company. This article also helped me understand the limitations financial ratios have. Overall, I feel that this article is a great way to help someone fully understand what financial ratios are and how they are used.
ReplyDeleteAfter reading the Investopedia article I was able to take a lot of good information from the reading. Financial ratios are crucial to any type of business and for one all financial ratios must be benchmarked or compared to something. If they are just given without a comparison then there is really nothing compare and see how the company is doing. Right away the article laid out the way a financial ratio is to be used as well as the limitations. I found it interesting on the kinds of limitations I was reading about. For example, the limitation that said all companies have good and bad ratios making it tough to tell if a company had done well or not. I found that interesting because I know that if I saw a bad ratio I would automatically assume that the company had done bad. According to this ratio that is not the case. There were things that I read in the article that made sense and had already known from past knowledge. Such as using these ratios to compare to past performance. This helps for the company to adjust and plan for a better future. In the couple of minutes it took to read this short article it still presented good quality information that any reader could pick up on and learn something about financial ratios.
ReplyDeleteI read the Investopedia article and can now see more of the application of the ratios we went over in class. The article stressed that ratios are good indication of how a company is doing, but it is not perfect. An analyst must be careful however to not put too much weight on any particular ratio because, as the article stated, there are non-financial factors that influence a company's performance. The article specifically stated inflation and seasonality.
ReplyDeleteThe Investopedia article is a good article if you are looking to quickly learn how to compare financial ratios. Although it isn’t the most specific, I think that it presented a lot of useful information especially in the limitations section. One thing I never thought about was seasonal factors that could affect a company’s ratios (ie: high back to school inventory and high accounts payable decreases ROA). The one question that I was left with at the end of the article is what constitutes a full “economic cycle?” The article discusses that a company should analyze another company over a full economic cycle and I wasn’t sure what exactly a full cycle entailed.
ReplyDeleteThe Investopedia article discussed the uses and limitations of financial ratios. The part I found most interesting and which I could relate to was the seasonal factors of limitation which can affect ratio analysis. Understanding that inventory may be in demand at a certain point in time more than others can cause change in financial ratios. I agree that this article helped to better understand the financial ratios.
ReplyDeleteHello,
ReplyDeleteInvestopedia had some good examples of financial ratios and how they are used to compare companies that are typically in the same sector. I feel that when looking at these ratios it is importaint to look at them over an economic peorid this way you can look to see how this company performed in hard times or good. Basically when these ratios are used right they are very helpful for information on that firm.
After reading the Investopedia article I learned the importance of analyzing these financial ratios to get a better understanding of how the company is doing and where they are headed. This article related to what we have gone over in class and gave me a better understanding of the specific material.
ReplyDeleteThe Investopedia article definitely reiterated that while the use of ratios can be helpful in financial analysis they are not always perfect. The limitations include issues with larger companies that work in various divisions which makes them harder to compare with other companies. Another issue that I found particularly interesting was that seasonal factors distort the ratios due to high inventories or low inventories at different times during the year. Overall it seems important to come up with the ratios, but to realize what factors may be influencing the ratios is important as well.
ReplyDeleteThe Motorola article was a very good example of the use of financial ratios. It was interesting to find out that Motorola is divided into six different operating segments. I think the best improvement for Motorola would be to better control their operating costs. They are investing to many employees and not making enough return. Motorola has a productivity of $0.27M per employee compared to Nokia which had $0.53M per employee. They need to focus on one area and strengthen it and be dominant in that field before they expand. Motorola used financial ratios effectively to help them see where they stand. This will help create more effective decisions and a better business in the long run.
ReplyDeleteInvestopedia was an excellent article and I agree with what everyone else has been saying. They discuss how that company breaks down similar companies and then puts together financial ratios for analysts to look over. I learned that there are many limitations that companies can come across when running different types of ratios. These all help in finding out if the company is performing well on a daily up to a yearly basis. The article helped us to better understand by using tables, and comparing them with the equations. Collectively this was a great article and it helped me to understand ratios and to be able to read if a company is doing well financially or not.
ReplyDeleteThe Investopedia article was interesting in the fact that it addressed the way ratios are used to show financial analysis of companies and how they are sometimes inaccurate. The information processed and given showed different financial aspects of a company that people may not always think about and shows how a company is doing and how it should do. I thought the article was a good read and related well to material being covered in class.
ReplyDeleteThe Investopedia article was very interesting in the why it addressed financial ratios. This shows many views of the company including how it is doing financially. Also, ratios are important because competitors look at statements to see how they compare to the competition. Overall, the article gave some great information on financial ratios and was connected to the information taught in class.
ReplyDeleteThe Investopedia article was a very good read. It shows us all about how Motorola is doing financially. I liked how they broke down other companies to help them see where they are and help them with their financial ratios. I was also suprised to see that they have broken down the company into six different segments which helps them in operating. Overall it was a good read about how a company uses financial ratios throughout the week and years.
ReplyDeleteI have to agree with both Lauren and Zack on their precaution of reading the financial ratios. There are such times as depressions where profits are low or times of seasonal high inventory where profits may be too high, which will affect the ratios largely. Basically, you have to take each financial ratio with a grain of salt since there are certain scenarios where the numbers might be deflated or inflated too much.
ReplyDeleteThe Investopedia article was a informative article and I enjoyed reading it. They were very detailed in stating how some ratios help people and business's see where they stand financially. My favorite part was them saying how some ratios may be misleading to the person trying to analyze it.
ReplyDeleteThe investopedia article was very interesting and showed the importance of financial ratios. As a company, you always need to see how your company is doing financially to evaluate your strengths and weaknesses. Financial ratios allow the companies to do this. Overall, the article was great and connected with what we are learning in class.
ReplyDeleteMatt Noonan
The Investopedia article is very useful and is good that we had to read it. It shows how when using financial ratios that they can be used in incorrect ways that would lead you to looking at false information. However, the article points out how useful they can be if they are understood and calculated correctly. The limitation section of the article I believe is very important to showing us things we need to think about when analyzing ratios.
ReplyDeleteDominic Matacale.
The Investopedia article gave me insight on how financial ratios are actually used in the business world. It was helpful to read the artical and see how these ratios were a very important part of not just that business alone, but to also to the competitors. It was interesting to see how the financial ratios we are learning about in class also have a lot of value in a real business enviroment.
ReplyDeleteRegis H.
I found the Investopedia article very interesting and the information it provided on financial ratios helpful. From reading this article I was able to get a better idea of benefits and fall backs to using financial ratios. These ratios are useful when a company is trying to predict what its future will look like. The article also told us that financial ratios are affected by inflation and seasonal changes that may provide an unclear outcome which could be a serious fall back. Reading this article gave me a better perspective of what financial ratios are all about.
ReplyDeleteGillian K.
I'm having the same difficulty as last time with posting on the blog.
ReplyDeleteFor some reason it's not identifying me as being able to post a comment,
even when I'm signed in. So I'm just gonna copy and paste my response
into the email:
I think the Investopedia article was very insightful! I think one
of the big pieces that people overlook is the fact that ratios are not
always going to be the same. Too often people misread / misuse ratios to
predict returns / situations that in fact will not actually happen.
Computing a ratio means nothing if you do not know how to use and
analyze the number you've just calculated. There's a great skill that
comes with knowing what a certain ratio means for the company and the
industry as a whole. Highlighting a few things: comparing the ratio is
extremely important because a ratio is just a number if you cannot
compare it to a benchmark. Another point: understand when a ratio may
drop / fall based on season, industry, economic condition, environment,
etc. You can make yourself a very wealthy person by utilizing the tools
that investors have at their disposal, and it starts with the simple
financial ratios.
James T.
The investopedia article brought up some great points when it came to financial ratios and flaws. One of the flaws was how many large companies produce in different divisions across different industries and this causes difficulty when it comes to setting an industry-average. Even though the financial ratio may be altered, there is still a percentage of truth in it, which can actually be analyzed and provide some information. Some other flaws included inflation, seasonal factors, and how different accounting practices are used between different companies, industries, and countries. In the end, if a company analyzes the data with some flaws in mind, the company will be able to take to proper information that is revealed. However, if interpreted poorly, the ratios mean nothing.
ReplyDeleteMike I
The investopedia.com article made a good point. Ratios are very comparative based. In this life everything is about contrast. We cannot know good without evil. Or we cannot know light without dark etc. The same is true in business. We cannot know what a good ratio is without being able to compare it to something. Ratios are just a number until you compare it to something to give it meaning. Some things you could compare ratios to is previous years, other companies, economic cycle, etc. Also, another thing to consider is the reliability of the source in which you are getting you information. Sometimes ratios can be misleading if the information is not correct.
ReplyDeleteBen D.
The Investopedia article was interesting because it gave real world examples on how finacial ratios are actually used in a company. It explains what analysts campare ratios too. Analysts use industry norms,the aggregate economy,and past performances to better judge the ratios that the company has come up with. It also touches on the limitations that come with using financial ratios.
ReplyDeleteThe article on the Investopedia site was quite interesting and further emphasized the importance of dealing with ratios in a corporation. It gave great examples as yo why comparing more than one corporations financial statuses was important. After reading it I learned that plenty of corporations compare each others ratios in order to help themselves succeed. By doing do they getting an idea as to where their company has to prosper. I liked the fact that they only do these comparisons with other corporations within their fields so they can get more knowledge as to where their numbers should be. Since the business world is so competitive it is only right that they compare their ratios in order to become one of the best.
ReplyDeleteThe Motorola Analysis provided in-depth figures to how the Global manufacturer had performed in the early 2000’s. The article first discussed Motorola’s 6 operating segments and how each segment was responsible for a segment of its sales, telecommunications and semi-conductors accounting for most of the sales. Motorola’s financial ratios are difficult to comprehend because of the varying industries that Motorola consists of. The article gave further insight into Motorola’s profit and losses. Motorola was very successful at one point, but in my opinion was not innovative enough to compete with its growing rivals like Verizon wireless.
ReplyDeleteThe Investopedia article gave me a better understanding of topics learned in class. It reinforced the fact that financial ratios can only be looked at in comparison to other financial ratios, whether they are past ratios of that company or ratios of another company in the same industry. It claimed that these numbers are only significant if they are being analyzed correctly. Also, there are many limitations that cannot be overlooked, that help determine the meaning of these numbers. Financial ratios, although important, must be used the right way in order to determine the quality of a company's performance.
ReplyDeleteKelsey B
The Investopedia was a very good article and made a lot of solid points. I thought that the equations can be very useful when comparing companies.
ReplyDeleteI thought the Investopedia article was very interesting and the benchmarks that they mention I agree with. You have to compare your numbers to other companies doing this will allow you to get a good idea as to where you are at. But just as important to me was the benchmark that you need to look at numbers from your past. These numbers will be an accurate representation of what your company is capable is.
ReplyDeleteThe investopedia article help me learn more about how financial ratios can be helpful in some case but also can be deceiving in other ways. These ratios can be helpful because it allows you to compare similar companies. By using the ratios to compare the companies it helps you make predictions how successful each of the companies will be in the future. However there are many limitations of the financial ratios that could be misleading to analysts. Some of the limitations are inflations, seasonal factors and the different accounting methods used in different companies.
ReplyDeleteTiffany
This article really made financial ratios sound easy but in reality if someone messed them up, it could spell disaster. These equations are a very hepful tool that will help you compare companies.--John DiMartino
ReplyDelete