A balance sheet is an of import statement of the fiscal personal businesss of the administration. It is required to be included in the published fiscal histories of all listed companies. Normally, a good balance sheet provides three peculiar subdivisions, which are assets, liabilities, and equity. It is besides by and large knows as the statement of fiscal status or statement of fiscal place ( Helfert 2001 ) . Therefore it shows how concern is being funded and how these financess are being used ( Cinnamon & A ; Helweg 2006 ) . This assignment provides a brief account of balance sheet and explores the utilizations and restrictions of fiscal ratios to measure the fiscal strength of eBay Inc. 2007 and 2008.

## Company BACKGROUND OF EBAY INC

eBay Inc. is an American Internet company that manages eBay.com, an on-line auction and shopping web site in which people and planetary concerns merchandising with a broad assortment of goods and services. By early of 2008, the company had expanded worldwide, more than two 100 1000000s of registered users, 15 thousand employees and grosss of about 7.7 billion ( hypertext transfer protocol: //ebay.about.com/ ) . To analyze its fiscal public presentation, this article use the published balance sheet of eBay Inc. 2008 as an illustration.

Balance sheet is the accounting equation. Assetss, liabilities, and ownership equity are listed as of a specific day of the month, such as the terminal of the company ‘s fiscal twelvemonth ( Webster, 2003 ) . It has been claimed that assets are resources owned by a company while liabilities and equity are the agencies for financing those resources ( Vance, 2002 ) . Technically, there is a restriction to measure the fiscal strength of a company by utilizing balance sheet merely. To look at the future fiscal public presentation of a company, an income statement is necessary ( Helfert, 2001 ) . Apart from this, it is hard to measure a company by looking at fiscal statements ( Vance, 2002 ) .

We Will Write a Custom Essay Specifically**For You For Only $13.90/page!**

order now

## FINANCIAL RATIOS

Despite that, there is a manner to analyze, Financial Ratios. As Riahi ( 1998 ) notes that it is stand foring of import relationships between assorted points in fiscal statement. Its analysis is for you to cipher and compare relationships came from the information in the fiscal statement. By and large, there are four ratio classs, which are liquidness, activity, debt, and profitableness ratios ( Borland & A ; McLeod, 2000 ; R. Haber, 2003 ; Webster, 2003 ) .

## LIQUIDITY RATIO – Current

The liquidness ratio is used to find a company ‘s ability to pay off its footings debts duties. The greater value of the ratio is better ( R. Haber, 2003 ; Temte 2005 ) . It consists of two parts, current and speedy ratios. Current ratio is calculated as Current Assets divided by Current Liabilities ( Adair, 2005 ) . From balance sheet included, current ratio of eBay 2007 and 2008 are 2.3 and 1.7 ( Equation 1 ) . This shows that the eBay decreased its ability to pay debts. Both values are greater than one, which means they are to the full covered and the company has positive net working capital ( Temte, 2005 ) ; however, a ratio in surplus of one does non precisely mean that it is satisfactory liquid because of excessively much stock lists or non roll uping its histories receivable in a timely mode ( Fields, 2002 ) .

## LIQUIDITY RATIO – Quick

Sing to the speedy ratio, a common alternate expression is Current Assets minus Inventories and divided by Current Liabilities ( Adair, 2005 ) . Furthermore, there is another manner to cipher for speedy ratio, which is the sums of Cash, Marketable Securities and Receivables divided by Current Liabilities ( Temte, 2005 ) . However, it can non be calculated by the former method since there are no stock lists in the balance sheet. Sing to the latter equation, the speedy ratio of eBay 2007 and 2008 are 1.9 and 1.6 ( Equation 2 ) . Briefly, eBay is on a good place with its fiscal public presentation.

## ACTIVITY RATIO

The usage of the activity ratio is to demo the efficiency of a company turns its stock list or converts what it sells into hard currency. This will take to higher grosss and less disbursals ( Shim & A ; Siegel, 2007 ) . To entree the fiscal strength, the plus turnover ratio and stock list turnover ratio are the good illustrations and illustrations of activity ratios. However, the beginnings required to run into the demands of the expression are unequal. This consequence comes from the restriction of balance sheet, which does non supply one-year grosss and gross revenues. Therefore, the equation can non be calculated without them.

## DEBT RATIO

For the minute, the ratio concerned with mensurating the sum of debt that a company can presume is debt ratio. It indicates what proportion of debt a company has comparative to its assets. The step gives an thought to the purchase of the company that faces in footings of its debt ( Mott, 2005 ) . It is the ratio of Entire Debt divided by Entire Assets. In general, the higher the ratio, the more hazard that company is considered to hold take on ( Wang, 2007 ) . As December of 2008, with sums expressed in 1000000s, eBay had entire liabilities of $ 4,508.58 and entire assets of $ 15,592.44 ( Balance Sheet ) . By spliting, debt ratios of 29 % of the company ‘s assets are funded with debt. In the 2007 fiscal twelvemonth, a debt ratio of 0.24 was measured ( Equation 3 ) . This indicates that in 2008, the eBay had more of its assets fund by debts than it did in the 2007 fiscal twelvemonth. Both values with a comparatively low proportion of purchase as measured by the debt ratio. In other words, eBay ‘s assets are financed through equity. In add-on, eBay could perchance impart extra financess with comparative instance to finance its assets.

## PROFITABILITY RATIO

The last ratio of the fiscal ratios is profitability ratio. It consists of varies manner and computations. They are a step of overall public presentation, which can be used to measure a concern ability to bring forth net incomes as compared to disbursals over a specified clip period ( Ganguin & A ; Bilardello, 2004 ) . These ratios involve Net Income, Gross Profit and Net Gross saless that are non listed in the balance sheet. In other words, this ratio has a same obstruction as activity ratio.

## OVERVIEW OF FINANCIAL SITUATION

The balance sheets show that eBay has continued to turn in entire assets, showing its overall success and growing as a company. The turning addition in liabilities is chiefly in portion of investings to go oning growing and progressing engineering. After ciphering and analyzing eBay ‘s fiscal informations, it is apparent that it is in a strong fiscal place. This fact is proven through analyzing its balance sheet and ratios.

## CONCLUDING Remarks

By analyzing the liquidness of the eBay for both 2007 and 2008 fiscal old ages, it can be seen that its current and speedy ratios decreased. However, it still has a high current ratio, showing that it has more than plenty short-run assets to cover its initial liabilities, but it besides shows that eBay might non be puting plenty of its extra assets. Furthermore, the debt ratio for eBay 2007 and 2008 are really low which means that its assets are financed more through equity than debt, and non a really debt leveraged house. In the average clip, it is besides exposing itself to a big sum of equity. However, if the same tendency continues in 2009, it would bespeak a weaker fiscal place.

## LIMITATION OF FINANCIAL RATIOS

Due to the restriction of fiscal ratios, it is impossible to measure a company ‘s fiscal strength accurately ( Kulham & A ; Wiley & A ; Baker, 2005 ) . One set of ratios is non plenty to reason. All ratios must be viewed comparative to one another over clip. In certain state of affairs such as isolation, fiscal ratios are non really utile. To be meaningful, most of the ratios must be compared to historical values of the same house.

### Related essay samples:

- Acc/561 Wk1 Be1-7, Be1-8, Be1-9
- Accounting Equation Essay
- Access the Company Future Health
- Current Ratio Most Popular Liquidity Evaluation Ratio Finance Essay
- Analyse Ratios Of Best Digital And Every Zone Finances Essay
- Financial Ratio Analysis of Landry’s Restaurants
- Financial Statements Analysis Of Kellogg Company Finance Essay
- Ratio Analysis – Pharma Industry
- Xacc280 Week 9 Capstone
- Assessing Liquidity, Solvency and Current Ratios in a business
- Debt vs Equity Financing
- Assessing financial health
- Baron Goburg
- Gross Profit Margin Operating Profit Margin Finance Essay
- Financial Ratio Analysis for HSBC