Financial Analysts Play a Number of Roles

Financial analysts play a number of roles within an organization. They made assessments of the value of investments the firm has or may have in the future. They can specialize in determining the value of projects. In addition, financial analysts are engaged in risk assessment, and take steps to determining the best ways for the firm to mitigate the risks that have been identified. Overall, financial analysts use a multitude of different knowledge sets including taxes, finance, economics and risk management to assist the company in making the best financial decisions for the firm (BLS, 2010).

a )The net profit would be the gross profit less operating expenses, interest expenses and tax expenses. Thus, the net profit is: $1,000,000 - $345,000 - $125,000 = $530,000. From this the taxes are removed: $530,000 * (1-.3) = $371,000. The preferred stock dividends of $57,000 must then be removed in order to determine the earnings available for common shareholders:

$371,000 - $57,000 = $314,000.

b) The company has 15,000 shares outstanding and declared a dividend of $4.25 per share. This is $63,750. The increase in retained earnings therefore is:

$314,000 - $63,750 = $250,250.

3. Financial ratios are a set of ratios that are used to measure the financial performance of a firm. Based on the financial statements, the ratios measure the firm's liquidity, solvency, profitability, operating performance, returns, cash flow and investment valuation (Loth, 2011).

Financial leverage is the degree to which the firm's operations are financial by debt. A high degree of leverage reflects a high debt level; low leverage is low debt. The higher the debt, the more of a firm's earnings are earmarked for debt repayment. Thus, there is greater risk to the equity shareholder the more debt a firm has, as the firm's ability to generate a return for the shareholder is reduced.

Ratio analysis is the process of calculating the financial ratios and then analyzing them. They are analyzed against those of other firms, and against the firm's past performance in order to give an accurate perspective of the company's financial situation.

Common stock equity is the owner's equity that is held by the common shareholders. Equity is ownership in the company. Common stock is the basic level of ownership, differentiated from preferred stock by the fact that the latter has set payouts of earnings whereas common shareholders rely on declared dividends for their payouts.

A breakeven analysis is a managerial accounting technique where the financial manager calculates the amount of a product that needs to be sold in order for a company to break even on that product. The breakeven analysis relies on the basic breakeven formula where the breakeven point is the point where gross profit equals the firm's fixed costs.

The EBIT-EPS approach to capital structure is a method of determining the firm's optimal capital structure. The approach begins with an analysis of the firm's range of EBIT. Different capital structures are tested to find the one that delivers the highest EPS within the expected range of EBITs.