Case Study Analysis : Ratio Analysis

927 WordsNov 20, 20154 Pages
Ratio Analysis Profitability *Numbers rounded to nearest tenth Analyzing profitability is one of the most important measures of success for a business. It is critical for the company to increase profitability in order for it to succeed in its industry. For a company to tie ends on short and long-term liabilities, healthy profits are required. Conversely, minimal profits may have a direct correlation with operational inefficiency, leading to short-term debt and long-term insolvency. In reality, no business can endure their market for a significant amount of time without making a profit. Thus, the analysis of a company 's profitability, both current and future, is crucial in the assessment. At first, AirBoss seems to have a decent growth rate on majority of their profitability ratios. However, when the figures are compared to industry averages and a common rival in their industry, Cooper Tire, very interesting numbers arise. Measures including: gross profit margins, return on net sales, return on assets, and return on equity are critical in the evaluation of profitability in their business. For the rubber manufacturing industry, variable costs are at a minimum. Thus, in order for companies to thrive in this business, they must attempt to lower cost of goods sold to maximize profits. Gross margin is measured by taking gross profits and calculating it as percentage to overall sales. Without an adequate gross margin, companies will struggle with paying expenses and
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