Business Calculating and Analyzing the Financial Ratios

Business Calculating and Analyzing the Financial Ratios Questions

Company XYZ is a multinational corporation with operations in over 50 countries. In its latest financial statement, the company reported total revenue of $10 billion, operating expenses of $6 billion, and a net income of $4 billion. Additionally, Company XYZ has $20 billion in long-term debt with an interest rate of 5%, and it has issued $5 billion in preferred stock with a dividend rate of 8%.

Calculate the following financial ratios for Company XYZ:

1. Return on Assets (ROA): ROA measures a company’s ability to generate profits from its assets. Calculate Company XYZ’s ROA, and interpret the result.
2. Debt-to-Equity Ratio: Calculate the debt-to-equity ratio for Company XYZ, and explain what this ratio indicates about the company’s capital structure.
3. Earnings Per Share (EPS): Calculate the earnings per share for Company XYZ’s common shareholders, assuming there are 1 billion outstanding common shares. Interpret the EPS figure in the context of the company’s performance.
4. Interest Coverage Ratio: Calculate the interest coverage ratio for Company XYZ, and discuss what it reveals about the company’s ability to meet its interest obligations.