Lesson Plan Industry Sector

Lesson Plan Overview / Details

This lesson is designed to teach students how to use a mathematical model based on

financial ratios to assess the financial health of a company.

One Class Period
75 Minutes

Student Objectives / Goals

• Students will understand the purpose of specific financial ratios and interpret the meaning of calculated ratios.
• Students will calculate financial ratios using an income statement and a balance sheet
• Students will assess the financial condition of a company using financial ratios and apply a process to rank the financial health.
• Students will work on problem- solving strategies and think about what needs to happen to improve the financial health.

Activities in this Lesson

As students walk in they will pick up the Reading Overview and answer the question on the first slide of the PowerPoint on the back of their paper.

Question;

What do you think is the “financial health” of a company? Write down what you know as of right now on the back of your paper.

Show the clip ( Financial Advice ).

Beware of who is giving you advice, you need to be the expert!

• Whisper Read - Group Work

Have students begin by pair share reading the Overview Reading explaining public companies and financial statements. Have students set the chairs back to back, one reads and one highlights – changing each job after each paragraph. See PowerPoint slide 3 for an example. Give 15 minutes for reading activity.

Discuss the terms (PowerPoint Slide #4) from the reading. Have each pair share with the class a term or terms using a sentence they create.

• Real Life Example - Demo / Modeling

Use a real life example to explain profit margin and debt ratio. This will help students understand the importance of the percentage and how it relates to their own financial position. See PowerPoint Slide 6 for an example.

•Profit Margin - You just received your paycheck it was \$100.00 and after you paid gas and food you have \$25.00 left. The \$25.00 is your profit, this is divided by your paycheck, your profit margin is 25%! What happens if your expenses are \$80.00!

•Debt Ratio- You just bought a car and your loan is \$1,000. You also own your own furniture worth \$5000 and have some cash in the bank \$500. Your current debt ratio is 1000/5500 or 18%! What happens if the car loan was \$3,000!!
• The Fav 5 - Demo / Modeling

Together work through the 5 financial ratios as shown on the Fav 5 Sheet   - show the first example on the board, discuss the answer after each ratio and have students show their answers first. You can use paper inserted into plastic sheet covers and dry erase markers if you do not have white boards or clickers. Explain to the students we are using a sample company, Metro One Sportswear.

• The Fav 5.pdf [ Download ] Review of 5 financial ratios and the reason each ratio is important
• Students will look at the Metro One Sportswear points based on the Scoring Table to see the score for the company. What is the health of Metro One? What would be a change that would improve their score?  Using ratios and a scoring rubric is a valuable way to evaluate business performance!

Find an actual annual report of an existing publicly traded company. The internet could be used fo this purpose.Visit the site annualreportservice.com and setup one account for the class to use or use annual reports downloaded previously. I attached 4 samples, Wal-mart, Google, Footlocker and Apple.

Use the 5 financial ratio formulas to calculate the financial health of the company. Students will use the Financial Planner Worksheet to input their 5 ratios.