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0% found this document useful (0 votes)
228 views16 pagesLesson Plan Ratio Analysis Financial Analysis
Uploaded by
Matthew GonzalesCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
/ 16
Ratio Analysis
Financial Analysis
Finance
Lesson Plan
Performance Objective
Students will understand the importance of financial ratios in assessing a company’s financial condition.
Objectives
* Discuss the use of different types of ratios in business
* Calculate financial ratios
* Graph financial ratios
© Ratio a comparison of two amounts
* Ratio analysis- calculating and interpreting financial ratios; a tool businesses use to identify possible
problems as well as opportunities of a business
Liquidity- measures how quickly assets can be converted to cash
Efficiency measures how well assets and liabilities are managed
Leverage- how much debt is used to finance an asset,
Profitability- sales minus the costs associated with the goods or services sold
Stock: share of ownership in a company
Time
When taught as written, this lesson should take approximately four to five days to teach.
Preparation
TEKS Correlations
This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result
in the elimination of any or all of the TEKS listed.
130.168 (c) Knowledge and Skills,
(3) The student demonstrates mathematics knowledge and skills required to pursue the full range of
postsecondary education and career opportunities. The student is expected to:
(A) demonstrate knowledge of arithmetic operation such as addition, subtraction,
multiplication, and division;
(B) demonstrate use of relational expressions such as equal to, not equal to, greater than, less
than;
(C) apply data and measurements to solve a problem; and
(F) analyze data when interpreting operational documents.
Copyright © Texas Education Agency, 2014. All rights reserved.
1 Interdisciplinary Correlations
English-English |
* 110.31(b)(1) Reading/Vocabulary Development, Students understand new vocabulary and use it when
reading and writing.
* 110.3 (b)(11) Reading/Comprehension of informational text/procedural texts. Students understand
how to glean and use information in procedural texts and documents.
Math-Algebra |
© 111.32 (b)(1)(C) Interpret and make decisions, predictions, and critical judgments from functional
relationships.
Social Studies-World Geography
113.34 (c}(20}(A) Describe the impact of new technologies, new markets, and revised perceptions of
resources.
Occupational Correlation (O*Net - www.onetonline.org/)
Job Title: Accountants
O*Net Number: 13-2011.01
Reported Job Titles: Business Analyst, Accounting Supervisor, Financial Reporting Accountant
Tasks
* Prepare, examine, or analyze accounting records, financial statements, or other financial reports to
assess accuracy, completeness, and conformance to reporting and procedural standards.
* Analyze business operations, trends, costs, revenues, financial commitments, and obligations, to
project future revenues and expenses or to provide advice,
* Report to management regarding the finances of establishment.
Soft Skills: Mathematics, Complex Problem Solving, Critical Thinking
Accommodations for Learning Differences
It is important that lessons accommodate the needs of every learner. These lessons may be modified to
accommodate your students with learning differences by referring to the files found on the Special
Populations page of this website.
Preparation
* Review and familiarize yourself with the terminology and website links,
* Have materials and websites ready prior to the start of the lesson,
References
* http://ro.uow.edu.au/commpapers- An Example of the Use of Financial Ratio Analysis: The Case of
Motorola
* Century 21 Accounting Advanced, South-Western Publishing, 2008.
Copyright © Texas Education Agency, 2014. All rights reserved.
2 * South-Western Contemporary Mathematics: for Business and Consumers
© https://secure.wvscpa.org/resources/public/56-takin_care_of_business_cpa_ipack
* _https://takechargetoday.arizona.edu/lessonplans/financial-facts-feud
Instructional Aids
Textbook or Computer Program
Lesson 1.01 Presentation
© Instructor Computer/Projection Unit
© Online Websites
agrams/Charts
Introduction
The main purposes of this lesson are to help students understand the following concepts:
+ how to calculate financial ratios,
+ what financial ratios mean to a business, and
+ how some ratios relate to each other.
Ask students, “if a company is making sales, is it also making a profit?”
Ask students if they think that comparing a company’s ratios to a similar company is more or less
accurate than comparing them to the industry itself
Copyright © Texas Education Agency, 2014. All rights reserved.
3 Outline
What is Ratio Analysis?
‘A. Ratio- a comparison of two
numbers
B, Ratio analysis- a tool
businesses use to identify
possible problems as well as
opportunities
Ill. What is liquidity and why is it
important?
A. Liquidity measures how
quickly assets can be
converted to cash
Ask students if they know what a
ratio is. Provide examples, such
as males to females in a
particular college, odds of
winning the lottery, or a
‘comparison of a salary for two
different occupations,
Explain that ratios are a way to
quantify the financial condition
ofa business. We may see their
products in stores, but how are
they really doing?
When introducing the concept of
liquidity, ask students if they
needed money to buy prom
tickets; for example, how much
cash on hand would they have
(just fictitious amounts), or is it
in savings account? Is there
anything they can sell to get
cash?
Multiple Intelligences Guide
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Copyright © Texas Education Agency, 2014. All rights reserved.
4 B. Can determine how easily a
company can meet its debt
obligations
Liquidity Ratios
‘A. Working Capital
1. Shows what is left after all
liabilities are paid by the
assets
2. Equals Current Assets —
Current Liabilities
B. Current Ratio
1. Shows the dollar value of
assets for each dollar of
liabilities
2. Equals Total Current
Assets/Total
Current Liabilities
C. Quick Ratio
1. Determines the ability to
meet short-term debt
obligations
2. Equals (Total Current
Assets — Inventories)/Total
Current Liabilities
What is Efficiency and why is it
important?
A. Efficiency- how well assets
and liabilities are managed
B. Focus is on management
Place sticky flip chart paper on
the walls around the room and
assign a ratio to groups of two or
three, depending on your class
size, Have the groups conduct
research on whether a higher or
lower ratio is better. Once they
find out, they can write the ratio
name, what it means, the
formula, and the words,
“Higher” or “Lower.” Each group
can take turns presenting their
ratio to the class. No calculations
are necessary yet.
Show students a Balance Sheet
for a company they select. Then,
‘on the document camera or
board, show the students an
example of which accounts are
used for a ratio that you select.
Calculate the ratio and explain if
the ratio is favorable or
otherwise,
Then show them an Income
Statement and have the
students call out a ratio. Have a
student come up to the board
and demonstrate how to
calculate the ratio.
Multiple Intelligences Guide
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Copyright © Texas Education Agency, 2014. All rights reserved.
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often inventory is sold; too high
2 ratio can lead to high storage
costs
What is Leverage and why sit
important?
A
sed to finance an asset
8
the risk of bankruptcy if there is
too much debt that cannot be
repaid
Total asset turnover
handled
2. Equals Average Accounts
Receivable/(Total
Sales/365)
Inventory ratios- tells how
1. Inventory turnover = cost of
goods sold/average
inventory
2. Average days to sell
inventory = days in a
year/inventory turnover
1. How much a dollar of
assets generates in sales
2. Equals Sales/Average Total
Assets
Accounts Receivable Turnover
1. The average number of
times accounts receivable is
collected in a time period
2. Equals sales on
Account/Average
Receivables
Leverage- how much debt is
Can cause a company to run
As you are going through the
ratios, you can highlight the
accounts that are used for each
ratio. You can also locate
financial statements for a
popular, well-known company
and, if you have a computer lab,
have students view the same
company's financial statements,
or print them for the students to
highlight the accounts.
Show students how to locate
financial statements from
several sources. They can go
directly to a company website
and usually there will be a tab or
a page saying “Investor
Relations.” Students can also go
to www.sec.gov, go to Filings,
Company Filings Search, Full Text
(on the left), Advanced Search
Page (on the right), Under
Forms, click on 10-K, and click on
Company Name, then type in the
name of the company. Click the
link at the bottom for the 10-K.
Look in the Table of Contents for
Financial Statements.
Multiple Intelligences Guide
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Copyright © Texas Education Agency, 2014. All rights reserved.
6 B m3
Vill. Leverage Ratios
A. Debt to assets
1. Measures the degree of
financing of assets
2. Equals Total Debt/Total Assets
8. Debt to equity
1. Measures the amount of debt
financed by every dollar of
equity; the higher the ratio
the higher the risk to possible
investors or creditors
2. Equals Total Debt/Total Equity
IX. What is probability and why is it
important?
A. Profitability formula: sales minus
the costs associated with the
goods or services sold
8. Importance is that making a profit,
is the most prominent goal of
most businesses,
X. Profitability Ratios
A. Net profit margin
1. Measures how well the cost of
goods sold is controlled as
well as the operating accounts
2. Equals profit after
taxes/Sales
8. Return on investment
1. Represents the amount of
profit as it relates to the
owner's investment
Continue going through the
ratios with students—having
them respond to questions to
check for their understanding.
They can take turns in pairs
coming up to a projector and
pointing out how to make the
calculations.
Multiple Intelligences Guide
Copyright © Texas Education Agency, 2014. All rights reserved.
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2. Equals Net Income/Owner’s
Equity
C. Return on equity
1. Measures % of profit earned
‘on the stockholder’s
investment
2. Equals profit after taxes
/stockholder’s Equity
D. Return on assets
1. Measures the profit earned
from the assets of the
‘company
2. Equals profit after taxes /
Total Assets
Xl, What are investor ratios and why are
they important?
A. Also referred to as ratios that
affect stock
B. Stockholders concerned about
how well a company is performing
C. Dividends paid from profits so
stockholders are concerned with
earnings
XIL. Investor Ratios
‘A. Earnings per share
1. The amount of net income
that belongs to one share of
stock
2. Equals net Income /
Outstanding
Shares
B. Price-earnings ratio
1. Measures the amount
You can also create a Family
Feud (called Financial Facts
Feud) game for the students and
divide the class into teams. An
example question could b:
What terms are associated with
the Quick Ratio? The choices
can include: Total Current
Assets, Inventories, or Current
Liabilities. If any guesses are
made that are incorrect, the
team gets a strike, Three strikes
and the other team gets
chance to answer. Follow this
link to get a template:
httosi//takechargetoday.arizona,
edu/lessonplans/financial-facts-
feud. Youneed to register for
the website but itis free.
Copyright © Texas Education Agency, 2014.
8
All rights reserved Multiple Intelligences Guide
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