When analyzing a company, it is important to observe their financial ratios and the meaning behind the ratios. The ratios are a good way observing a company’s effectiveness as well as their profitability. Financial ratios include the return on assets, profit, margin, current ratio, quick ratio, and more. Nonetheless, all of which are involved in analyzing the current state of the company. By taking the ratios of 2016 which are calculated in A.1 using the income, balance, and cash flow statements found in A.9, A.10 , A.11,and A.12 we are able to analyze Duke Energy. The operating margin and profit margin both incorporate sales, but the operating margin takes EBIT into consideration, while the profit margin takes net income into consideration. …show more content…
The profit margin shows that Duke Energy has a net income of $0.096 for every dollar of total revenue. Overall, Duke has a good operating margin, but the profit margin is a little lower than average. Furthermore, return on assets, the return on equity, and the return on invested capital are important in relating net income to assets, equity, and fixed assets respectively. They are ways of measuring the profitability of a company. By using the income statement and balance sheet the return on assets is calculated to be 1.6%, the return on equity is 5.24%, and the return on invested capital is 2.66%. The higher the return on assets is the better the company is, which is significant for Duke because they have a low ROA, low ROE, and low ROIC which could be debt related. The current ratio and the quick ratio use assets and liabilities found on the balance sheet to determine how a company is doing with short term liquidity. The only difference is that the quick ratio subtracts the inventory from the current assets. The current ratio is .70 and the quick ratio is …show more content…
Finally, the Fixed asset turnover shows how a company uses assets to create revenue and Duke has a very small value. This is important, but does not determine the total success of a company. Unlike Asset Management ratios debt management ratios consists of Total debt to capital and the times interest earned ratio, which are calculated to be 54% and 3.5 respectively. The times interest earned ratio shows that Duke operates at a low margin of safety, so it would be difficult to borrow money, whereas the total debt shows a high ratio, but it is not a major concern with the scale Duke operates on although it means creditors supply over half of the total funds. Market value ratios including the market and price ratios are also important in determining a company’s success. The market and price ratios are very standard with values of 1.32 and 2.36 respectively. Finally, observing NOPAT (4242.51), net working capital (-3512), net operating working capital (-5999), and free cash flow (12,378) it is noted that this is very normal and comparable to the industry. By observing the WACC value of 2.63, which means that there are typically higher risk associated with Duke