Case Study Example | Topics and Well Written Essays - 1750 words

Case Study Example (Troy 2007 pg 158-172). The purpose of conducting such a form of analysis is to assist meet the informational needs of the investors, creditors and management so that they are in the position of making appropriate decisions. The ratios analysis conducted herein is done with the objective of comparing the all the measurements of financial data to aid or facilitate wise investment decision, as well as credit decisions and managerial. A Cross-sectional Analysis will be conducted where- ratios are used and compared between two firms (Goofy’s & Pluto’s) of the same industry(the sporting goods business) in order to draw conclusions about an entitys profitability and financial performance hence the ability to invest in this sector. Inter-firm Analysis will be categorized under Cross-sectional, as the analysis is done by using some basic ratios of the Industry in which the firm under analysis belongs (and specifically, the average of all the firms of the industry) as benchmarks or the basis for our firms overall performance evaluation as compared to the whole industry (Troy 2007 pg 113-17). In the analysis, we will use the return ratios, financial leverage ratios, activity ratios, profitability ratios and liquidity ratios to make our decision on whether to invest in the sporting goods business. The decision to invest the $5,000 will be on the criteria of the company that shows good financial shape and hence able to provide the investor with a return on investment. My analysis and decision will be based on the ratios from the table above which can be grouped into return ratios (rates of return on assets and Rate of return on equity); financial leverage ratios (debt ratio, debt to equity ratio). In addition, Activity ratios (Inventory turnover, receivable turnover and asset turnover ratios); profitability ratios (Gross profit margin, net profit margin