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.”
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.
Accounting ratios offer insight into business performance. The financial stability of a company can be tested to see how a company is performing using financial ratios. I have three sets of accounts, it is my objective to calculate the ratios, and interpret them to show the overall performance levels of all three companies. Liquidity ratio evaluates the company’s ability to pay off any current liabilities as well as long-term liabilities. These ratios display the cash levels and the ability to turn assets into cash to pay off liabilities and other current obligations.
The Rogers Internet Network provider company uses financial ratios to assess its performance and financial health. The relevant and irrelevant financial ratio used by Roger’s internet service provider. Relevant Financial Ratios: What are the Financial Rati Liquidity Ratios: This ratio includes the current ratio and quick ratio; liquidity ratios are used to measure the company's ability to meet short-term debts with its current assets.
After preparing the Pro Forma Financial Statements for the company Bodie Industrial Supply Inc. (or BIS), I have calculated the pro forma ratios, and the sustainable growth rate. So, I can analyze the data using this information from 2006 to 2007. As we can tell by BIS’s Profitability, the gross margin is forecasted to stay at 28.5%. On the other hand, the industry average is 32.1%. Also, the company’s Net Profit margin is 2.648%, which shows a drop by 0.152.
A company’s financial statements provide numerous financial information that analysts, creditors, and investors use to assess a company’s financial performance (Bethel University, 2017). Financial statements convey past performances as well as future opportunities and expectations. The information presented in financial reports of a company is required by law or by accounting regulations. Publishing such reports as the balance statement, income statements, and cash flow statements allows management to communicate with interested parties about the accomplishments and success of the company. The financial condition of a company is a major concern to creditors and investors.
Pearson plc has numerous accounts composing its balance sheet. One account in particular is especially important to the company’s operation—account receivable. An account receivable is an oral agreement from a customer to an entity that states the customer will repay the amount of goods purchased or services rendered. Other names for account receivables include trade receivables and nontrade receivables. Pearson refers to their account receivables from credit sales as trade receivables.
The Business Report analysis both The Pacific Energy Limited and ERM Power Limited. It explores their Profitability,liquidity,Asset and Capital Structure Ratios. Furthermore it discusses and recommends investment, and the CSR of the companies it also provides financial statements with horizontal, a vertical and financial ratios. Both ERM Power Limited and Pacific Energy Limited are generating healthy and unhealthy returns, with Pacific Energy Limited generating a healthier return.
Thanks for your letter providing the details about financial statements of Roberts Company and Blackburn Company. This letter is calculating four different financial ratios to analyze the financial health and profitability of two companies. The current ratio is to show a company has sufficient resources to pay back its current liabilities.
Flight’s total revenue has increased in the past four years. However, the amount of tax the firm has to pay has substantially increased in the same period because tax expense is based on the amount of revenue that is pre-tax profit. Flight is a profitable company with a good return on equity ratio of 26.13% in 2013, which means that Flight is able to generate $0.26 profit for every dollar of shareholder equity. In terms of return on asset ratio, the company has not been able to achieve its target as it loses around 20 cents for investing each dollar of its asset. Liquidity is an indicator of the ability of a company to satisfy its current liabilities.
Apple 39.08, Google 61.08, Microsoft 61.58 (Appendix B, Table 5 and 6). The profit margin evaluates profitability ((Revenue - Cost of goods sold) / Cost of goods sold). With 39 percent return on sales ratio, Apple lagged behind Google and Microsoft in converting sales into net income. Return on Assets.
Also, such information are essential to know how healthy and strong is the business financially to make business plans either for short- term or long term. In summary, The financial ratios are essential financial tools that are used to measure the business financial health, business ability to pay its liabilities, business needs for getting loans, and the ability to carry on new investment.
1. How do you think financial ratios differ across different industries? Compare two industries of your choice and select a few ratios and explain whether you think the ratios would be higher or lower for each of those industries and explain why. Financial ratios differ across different industries because different industries have different type of market like consumer and demands. Each industries are varies and sometime unique depending on the type of services or product they offer.
b) Profitability Profitability ratios are used in an effort to evaluate management’s ability to monitor and control expenses, and to earn a profit on resources committed to the business. These particular ratios assess a company’s strengths and weakness, operating results and growth potential. Moreover, they measure on the efficiency of assets being used to generate net income and sales. The higher the ratio, the more effectively a company is using their assets.
Under this type of analysis, a number of ratios used for measuring the meaningful quantitative relationship between the items of financial statements during the particular period. This type of analysis is useful in comparing the performance, efficiency, and profitability of several companies in the same group or divisions in the same company. In order to avoid the limitations of Comparative Statement, this type of analysis is designed. Under this method, financial statements are analyzed to measure the relationship of various figures with some common base. Accordingly, while preparing the Common Size income statement, total sales is taken as a common base and other items are expressed as a percentage of sales.
