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Financial Ratio Assessment Answer

    RBC 

    Have section done by 12th 2:30 meeting (ESB 251B)

    Nonye: Table 1, ratio’s 

    Robin: risks legal, moral, casualty, economic, political 

    Tyler: property, personal, reputation, operational, financial 

    Brett: company description, purpose of the paper, presentation and word doc to hand in 

    Research Questions: 

    1. What types of risks does your chosen firm face?
    2. Based on your analysis and findings of the company, what kind of insurance(s) would you recommend to mitigate the identified risks? Why? Please justify your recommendations by providing a high-quality argument. 
    3. What factors can cause a firm to be underinsured or uninsured? For example, a firm may not purchase enough professional liability insurance to cover losses from litigation(s) because of the reduced cash inflow 

    Parts of Report: 

    Introduction 

    3 – 5 pages 

    http://www.rbc.com/investorrelations/pdf/ar_2019_e.pdf pages 122-126, 214 

    Company Name (e.g., Canadian Tire): Year 20XX

    Balance Sheet Items




    Current assets (CA)CashShort-term investmentAccounts receivablesInventoryTotal CA
    Dollar amount ($)




    Long-term assets (LA)Net property, plant & EquipmentIntangible assetsOther long-term assets
    		Total LA
    Dollar amount ($)




    Current liabilities (CL)Accounts payablesShort-term loanDeferred revenueOther CL
    Dollar amount ($)




    Long-term Liabilities (LL)Long-term DebtDeferred revenueOther long-term liabilities
    		Total LL
    Dollar amount ($)










    Income Statement Items




    RevenueCost of good soldSelling, general & admin exp.Int. ExpensesNet incomeCash Flow
    Dollar amount ($)




    Other information: Company Beta; Names of intangible assets (e.g., copyright, patents, etc.) 


    • Fundamental ratios that help insurance coverage decision: NONYE
      • Net profit margin = Net income ÷ Net sales (revenue)
      • Return on assets = Net income ÷ Total assets  
      • Return on equity = Net income ÷ Shareholders’ equity
      • Debt to capital ratio = Total debt ÷ (Shareholders’ equity + Total debt)
      • Debt to equity ratio = Total debt ÷ Shareholders’ equity 
      • Current ratio = Current assets ÷ Current liabilities 
      • Cash Ratio = Cash and cash equivalent ÷ Total current liabilities 
      • Cash flow per share = Total cash flow from operating activities ÷ Number of shares outstanding 
    • What types of risks the firm faces or can face? (ch 1 & 2)
      • What is the problem? For example, Canadian firms face a variety of risks and may end up losing entire capital in the domestic as well as in the international markets without insurance.
    • What is the purpose of the paper? 
      • What is your answer to the question? You can answer these two questions in one sentence. For example: the purpose of this study is to examine the types of risks the Canadian firm faces and recommend a variety of insurances to mitigate risks. 
        • The purpose of this study is to examine the types of risks Royal Bank of Canada faces and to recommend a variety of insurances to mitigate their risk. 


    Analysis, Findings, and Recommendations 

    8 – 10 pages 

    • Analysis and findings 
      • Should include the types of risk your chosen firm faces. You may use table(s) to show types of risk
    • Table 2: Types of risks

    TYLER FIRST 5, ROBIN LAST 5

    o Property risk (e.g., risk related buildings such as fire, theft, water damages, etc.)  
    o Personal risk (e.g., poor health, liability risk, etc.)  
    o Risk to reputation
    o Operational risk [e.g., workplace safety, damage to the physical asset (equipment, automobile) and loss of production/service]  
    o Financial risk (e.g., exchange rate, credit risk, etc.)  
    o Legal hazards (e.g., risk of lawsuits)
    o Moral hazards (e.g., risk of lawsuits)
    o Casualty risk (e.g., risk related to product/service, errors, and omissions, directors and officers, employees, malpractice, etc.)  
    o Economic risk (e.g., Demand for product/service, competition, etc.)
    o Political risk (e.g., bureaucracy, government stability) 


    • 2.2 Recommendations (Please read chapters one to eight very carefully) 


    • Based on your analysis of the chosen firm, what type of insurances (e.g., automobile insurance, homeowners’ insurance, commercial insurance, employee health care insurance such as medical coverage and dental coverage, workers' compensation insurance, corporate income protection insurance, executive and employee life insurance, etc.) would you recommend? Why? Please justify your thoughts by providing a high-quality argument.
    • You can also use table(s) to provide recommendations to mitigate risks. For example, your chosen firm may require the following insurances:


    • Table 3: Types of coverages needed for the firm


    o Property insurance  o Group life insurance o Group disability insurance for Employees/MGMNTo Critical illness insurance
    o Equipment insuranceo Casualty insuranceo Private health insurance (group plans) for Emp./MGMNT o Creditor insurance (p. 431)
    o Marine insuranceo Workers’ compensationo Dental & medical insurance for Employees/MGMNTo Key persons’ life insurance (e.g., CEO)


    Conclusion 

    1 – 2 pages 

    A reasonable conclusion is a simple matter. Please sum up how you proved your thesis (argument) to be correct.

    A variety of factors can cause a firm to be underinsured or uninsured certain types of risks. Please include these factors in the conclusion. For example, a firm may not mitigate exchange rate risk because of the reduced cash inflow.       

    Answer

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