The three financial ratios are important tools that judge the leverage, profitability, and liquidity. “Profitability ratios are ratios that measure the rate of return a firm is earning on various measures of investment.” (2018, p. 150) This is important to a business because the whole purpose of a business is to make a profit, profitability shows the business exactly how it is doing and if the business is achieving that goal. “Profitability ratios also have many major ratios one being return-on-equity (ROE), calculated by dividing net income (profit) by owners’ equity, measures the income earned per dollar invested by the stockholders.”
Metro’s profit margin is also about double the percentage of Loblaws which demonstrates that Metro is better at taking revenue and turning it into profit than Loblaws. This company’s net earnings had a large increase of 12.9% from the previous year. The profit margin is important for shareholders because it shows them that the company is efficient and profitable. In addition, food deflation should ease in the next quarters so this will help grocery retailers, like Metro, to increase their profits and
In this category the Boston Beer Co. results are similar to Heineken, and much better than the financial ratios of Anheuser Bush. Comparing the profitability ratios, we can see that while the profit margin lays between the profit margins of Heineken and Anheuser Bush, the return on assets and equity is much higher than the returns of any of the two competitors. And all the profitability ratios for Boston Beer Co. are increasing over the last five years. The market values ratios measure how much investors are willing to pay per $1 of earnings (Price Earnings Ratio) and compare the market value of the investment to its historical cost (Market to Book Ratios). Both of these ratios are higher for the Boston Beer Co. and so is the Earning per Share Ratio.
From analyzing the gross profit margin percentage, The Home Depot regressed by .03% from Fiscal 2015 (34.19%) to Fiscal 2016 (34.16%). However, this regression has little impact on the company's profitability. The company was still able to maintain an adequate selling price above its cost of goods sold. The Home Depot's operating income percentage, which determines the company's ability to earn operating income from sales, shows that the company had an increase of .89%, increasing from 13.30% in 2015 to 14.19% in 2016. While reviewing the net profit margin percentage, which is the company's ability to earn net income from its sales, an increase from 7.92% in 2015 to 8.41% in 2016 occurred.
A Target Corporation Analysis Target originally started in Minneapolis in 1962 and currently has 1,803 stores and over 340,000 employees (Corporate Fact Sheet, 2017). The company target market are consumers that shop for everyday items and also accommodate consumers who are looking to purchase item such as new electronics like TV’s and game consoles, and to the consumers who are shopping for new furniture for children like cribs and dressers. The prime market for Target are consumers at a median age of forty. Fifty-seven percent of their consumers are college graduates, have a house hold income of $64k, and forty-three percent being families with children (Corporate Fact Sheet, 2017). Target is able to offer competitive “style at discount
In analyzing the net profit margin ratio, Lockheed Martin’s 11.22% is above the industry average of 8.65% and the aerospace and defense sector average of 8.11%, and exceeds all competitors (Lockheed Martin Corp. (LMT) | Financial Analysis and Stock Valuation. n.d.). This net profit margin ratio shows that Lockheed Martin’s significant defense sector contracts, most notably the F-35 Lightning II fighter, and diverse revenue streams, strengthen the company’s overall flexibility to withstand downturns in different market sectors (Lockheed Martin Corporation SWOT Analysis. 2016). The second profitability ratio to examine is the return on assets ratio. Lockheed Martin’s return on assets ratio is 11.09% (Lockheed Martin Corp. (LMT) | Financial
Over the 5 years looked at they had a range of 66%-70% in liabilities and 29%-33% in stockholders’ equity. There gross profit never got above 30% in the 5 years and there total net income available to common stockholders was right around 4%, except for the year in which they closed all of their Canadian stores. There weren’t too many surprises in Target’s percentage change statement, again, except the year they close the Canadian stores. Cash went up 83%, while Net income shot up the year after they had to pay for all those stores. Looking at both statements, Target’s future look bright with slight percentage increases in almost every category.
Target Corporation makes money by offering quality products and services at discounted prices. It also ensures its stores have all the products that the consumers require. This way, they are able to target and meet the needs of their loyal customers. By helping the consumers cut expenses, the company also ensures that they keep coming back for more. The company sells its products across the United States through stores, online purchases and mobile devices (Rowley 2003).
Value investors search for stocks that the market price doesn’t fully reflect the business's future cash flow. BAC is currently operating at a P/E ratio of 17.1 which is about 13 times the earnings, which is below average according to Investopedia. (I. 2015, April 17) A low P/E can indicate that a company may be undervalued or that the company is doing exceptionally well in comparison to its past trends.
We believe this is an important ratio to apply because it gives a clear understanding of where their profits are, which affects all business decisions. Higher profit is ultimately better for shareholders and Best Buy’s ratio is comparable to other retail companies, making it a good company to invest in. Additionally, their return on assets (ROA) was 0.0897. While this may seem low, Best Buy is a retail-based company and most retail companies have a low ROA. Best Buy’s ROA is comparable to other retail companies, and better than most, making it a good company to invest
The market-to-book ratio measures the amount that investors will pay. This ratio is a part of the market value ratio. The market-to-book ratio is the market price per share divided by the book value per share. The current book value in the second quarter as of June 2017 is 6.99%. The book value per share increased for 11.97 in 2016.
This ratio will help the company create the level of stock price regarding its sales and revenues and in considering expenses and liabilities. Since Walmart is on
When it comes to making decisions, Fortune 500 companies rely heavily on their balance sheets and income statements. A balance sheet is a “statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period” ("Accounting Tools", 2017). An income statement is “a financial statement that reports a company’s financial performance over a specific accounting period” ("Accounting Tools", 2017). To gain a better understanding of the financial statements used for corporate financial reporting and the key ratios used to make business decisions a review of the Fortune 500 company Wal-Mart was selected in order to evaluate their current ratio, quick ratio, debt equity ratio, inventory turnover ratio, receivables turnover ratio, total assets turnover ratio, profit margin ratio, and lastly, return on assets ratio.
Low valuation ratios of these two companies indicated that their stock price might not be
Profitability ratios which will be used on this paper
