Evaluating The Profitability Of A Company

As concerns profitability, the company seems quite profitable; however, looking at liquidity, the problems appear. Current ratio shows that the firm has enough money in hand to pay short-term obligations. However, quick ratio illustrates that the company

Lets take a look at the expenses listed under “general and administrative” on the horizontal analysis worksheet. These particular expenses are costs a business incurs when performing normal operations. For years six and seven there was an increase of a little over 20%, or approximately 156 thousand dollars. Then in years seven and eight there was another slight increase. In order to maintain consistent or increased profits without raising prices and/or selling into new markets in order to increase sales figures, a business would have to cut expenses.

The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ratios provides a snapshot of company performance and future

The analysis of a company's financial statements helps in the determination of both the weaknesses and strengths of the concerned entity. Further, such an analysis helps in the determination of the future viability of firms. There are a wide range of techniques utilized in the analysis of financial statements. In that regard, it is important to note that the relevance of a horizontal, vertical as well as ratio analysis of a company's financial statements cannot be overstated. This is more so the case when it comes to the interpretation of the various dollar amounts presented in both the balance sheet and the income statement. In this text, I carry out a horizontal, vertical as well as ratio analysis of both The Coca-Cola Company and PepsiCo, Inc. The analysis' results will be critical in the evaluation of each company's performance. Findings will be used as a basis for recommendations on how each company can improve its financial status.

Understanding the flow of cash within an organization is critical to knowing the health of an organization. Without this understanding, a business may run into a situation where even though they are profitable, they may not have enough cash on hand to meet their obligations. This paper will look at the case study Eat at My Restaurant – Cash Flow (Gibson, 2013) and will analyze the difference between net cash provided by operating activities and net income and determine which a better indicator of long-term profitability is. It will then provide an analysis of the cash flow

In the case of Assessing a Company’s Future Financial Health, the case concentration is on SciTronics, a medical device company, performance measures based on the organization’s three primary financial data sources in Exhibit 1 & 2. Utilizing the 9 steps of corporate financial system, I will be able to analyze the financial health of the company to assess whether it will remain balance over the ensuing 3-5 years. The measures are grouped by focusing on “Financial Ratios” such as: 1.) profitability measures, 2) activity measures, and 3) leverage and liquidity measures. Using the financial data sources, I would be able to make recommendations regarding SciTronics 126 million loan request.

A review of a company’s profitability lets investors or managers know how efficiently a company is operating. There are three key ratios to review. The profit margin, return on equity and return on assets. The profit margin is the net income divided by sales. The higher the profit margins the better. The return on equity is net income divided by total equity (Cornett, Adair & Nofsinger, 2009).. This can help to determine the amount of financial leverage the company is using. The return on assets is the net income divided by total assets. This can also help determine the financial leverage the company is using in regards to its assets (Cornett, Adair & Nofsinger,

We are going to assess profitability ratios for 2014 year, including gross profit margins, return on sales, return on total assets, return on stockholder’s equity, and earnings per share. Next we are going to discuss liquidity ratios – current ration, quick ratio. Our analysis will include leverage ratios such as debt-to-equity ratio, interest coverage. Also, we will cover activity ratios including inventory turnover, fixed asset turnover, total assets turnover and accounts receivable turnover. Lastly, we will assess the price/earning ratio, the book value per share ratio, and the cash flow per share ratio.

A few years ago the company faced serious problems connected with declining comparable sales and operating margins. However, thanks to it Renew Blue strategy, by the end of 2014 the company managed to generate return on equity at 8% when at the end of 2011 this indicator stood at a negative 8%. Company's net profit margin improved significantly from -2,7% in 2011 to 3,1% in 2014 mostly due to cost reduction and closing low-performing stores. Asset turnover did not changed largely while sales fell from $45 billion in 2011 to about $40 billion in 2014. Additionally, the company succeeded in reducing financial leverage rate by about 20% from 3.67 in 2011 to 3.05 in

Operating costs as a function of sales have seen an increase year over year with quite a bit of absolute percentage volatility. These costs alone accounting for 105%, 124%, and 108% of total revenues for 2009, 2010, and 2011, respectively. If these were primarily variable costs, then with the reduction in total revenues these should have decreased as well somewhat proportionately. With production, distribution, and editorial costs comprising over 50% as a function of sales, MSLO is not controlling key product & distribution costs in a manner that will help increase their profit margins and possibly take them back to profitability. Because of this, the entities ability to continue as a going concern is questionable. With three years of massive losses and an accumulated deficit reaching almost $200 million, MSLO benefits from having an equity multiplier of ~1.46. The lack of liquidity issues ensures that MSLO can continue operating a net loss for a while longer. The flat growth/decay in general and administrative expenses indicates the firm is maintaining the same level of salary for a contracting business.

Some poor acquisition choices from prior leadership hurt the company but Joly has corrected these mistakes. Gross and operating margins have stayed consistently at 23% and 4% respectively, only fluctuating one or two points over the last 4 years (NASDAQ). Return on equity however has increased from 28% to 50% from 2015 to the first quarter of 2018. This shows that investor’s money is being used more efficiently as the market tightens (NASDAQ). This responsibility to investors is wise as projections show less investor interest in the company.

In review of the operating costs, overhead and administration have increased by 8% from 2008-2011 or $116,870. In addition salary dollars continue to increase from 2008-2011 by $111,150 with no efforts to flex. The other expenses are staying steady in proportion to gross revenues. There may be opportunities in these areas however salaries and overhead is the greatest opportunity to scale back costs and contribute to increased net income and ultimately positive cash flows. Flexing salaries and benefit to 44% of gross revenue and reducing overhead and expenses to 10% of gross revenue is recommended for Ms. Ringer to increase net income to $152,956 and equity to $240,214 (exhibit Operating Statements-2012 proforma).

The overall financial health of Electronic Arts is relatively poor. The figures in this paper all come from MSN Moneycentral, for ease of comparability over the past five years. As a positive point, the company has seen its revenues increase in FY 2012, but they are still below the level of 2009, which was a high for the company. The decline in revenue during both 2010 and 2011 resulted in significant changes at the company, including multiple rounds of layoffs and office closures. The company was not profitable during the 2008-2011 period but returned to profitability during 2012. The main culprit for the lack of profitability was "unusual expense", which is basically writedowns of overvalued assets. In addition, the company's gross profit during the years of loss was not strong enough. In 2009, for example, which was a high-water mark for revenues, EA had a gross margin of 49.5%. Last year, it was 61.4%. An examination of the company's cash flow from operating activities confirms that its margin improvements have helped its finances. In FY 2009, it earned just $12 million from operations, compared with $277 million last year. Improving margins is a positive sign, but coming after several years of weak margins and net losses, EA needs to sustain this positive trend before any celebrations can be made.

Ms. Ringer is largely supporting operations through her line of credit versus managing costs. In review of the operating costs, overhead and administration have increased by 8% from 2008-2011 or $116,870. In addition salary dollars continue to increase from 2008-2011 by $111,150 with no efforts to flex. The other expenses are staying steady in proportion to gross revenues. There may be opportunities in these areas however salaries and overhead is the greatest opportunity to scale back costs and contribute to increased net income and ultimately positive cash flows. Flexing salaries and benefit to 44% of gross revenue and reducing overhead and expenses to 10% of gross revenue is recommended for Ms. Ringer to increase net income to $152,956 and equity to $240,214 (exhibit Operating Statements-2012 proforma).

Every company for example Wal-Mart worries about its profitability. One of the most regularly utilized implements of financial ratio analysis is profitability ratios which are utilized to figure out the bottom line of the company. Profitability measures are vital to corporation managers and owners alike. If a small industry has outside stockholders who have put their own money into the corporation, the primary owner surely has to show profitability to those equity stockholders. (Blanchard, 2008)