Constructing Pro-Forma Statements (Heartland Express) Term Paper

Constructing Pro-Forma Statements (Heartland Express) - Term Paper Example e income taxes 53,264 26,833 13,617 26,833 Federal and state income taxes 9,350 9,350 9,350 9,350 Net income 43,914 17,483 4,267 17,483 FINANCIAL STATEMENT ANALYSIS THROUGH RATIO ANALYSIS A method widely used by the investors and analyst in order to evaluate and analyze the financial history of the company is the ‘Ratio Analysis’. Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility. The ratios can be divided into various categories such as profitability, gearing and liquidity, each focusing on a different area of the financial outlook of the organization and highlighting the company’s performance. The financial analysis of Heartland Express is divided into three main categorize namely Pr ofitability, Liquidity and Gearing. Profitability Ratios    2011 2010 2009 2008 2007 2006    Profitability Ratios Gross profit margin 20.16% 18.31% 17.18% 15.66% 18.66% 21.58% Net profit margin 20.30% 18.59% 17.69% 17.12% 20.40% 23.63% ROCE 31.50% 27.79% 22.11% 29.74% 35.22% 27.30% EPS 0.78 0.69% 0.62 0.73 0.78 0.89 Gross profit margin is an analyzing tool which assists in identifying how effectively and efficiently the company is utilizing its raw materials [1], variable cost related to labor and fixed costs such as rent and depreciation of property plant and equipment. The gross profit margin analysis of the last five years shows that subsequent to the financial year 2006, the gross profit margin declines. Though the sales of the company kept on increasing subsequent to the financial year 2006, but the... The liquidity ratio measures the company’s ability to pay its short-term liabilities. The ratio illustrates that how quickly a company can convert its assets into cash and cash equivalent in order to pay off its short-term liabilities. The most commonly used liquidity ratio, the current ratio, which is calculated by comparing the current assets and current liabilities. The strengthened the current ratio the more ability the company has to pay its debts and short-term obligations over the next 12 months. An overall analysis of the ratio would portray that in all the years the company had enough assets to pay off its obligations and debts. In the financial year 2007, the current ratio decreases from 3.35 to 2.91 due to the decrease in the current assets of the company by a staggering 32% which majorly pertains to the decrease in the short term investment from 322 million to 186 million. The cause of the decrease in the current ratio for the financial year 2008 also pertains to t he massive decrease in the short term investment. The reason for this decline is during that particular period, the equity shares market was going through its worst time. The companies rather than recording losses on market to market of these securities started selling these securities in the stock market. The acid test, which is also regarded as the quick ratio, is calculated by subtracting the inventory balance from the total current assert balance. Out of the current assets mentioned, inventories are regarded as the one which takes comparatively more time to be converted into cash or cash equivalent. The acid test ratio has followed the same trend as the current ratio.