Financial Ratios

670 Words Sep 10th, 2013 3 Pages
Interpreting Financial Results
FIN/571
July 22, 2013

Interpreting Financial Results
Liquidity: Current Ratio Parrino, Kidwell, & Bates (2012) detail the current ratio as current assets divided by liabilities. The current ratio identifies a firm’s potential to pay short-term liabilities; higher liquidity is a good sign for potential creditors (Parrino et al., 2012). At the same time, however, the current ratio should not greatly exceed benchmarks of other competitors (Parrino et al., 2012). This could be indicative of mismanagement of current assets and less cash flow for investors (Parrino et al., 2012). Current assets ($29,307,990) divided by current liabilities ($20,530,890) gives a current ratio for ABC SDN. BHD. of 1.43.
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The previous year ABC SDN. BHD. had a gross profit margin of .108. The increase in the gross profit margin is due to the decrease of $72,386,000 in the cost of goods sold. American Airline Cargo, its close competitors’ gross profit margin (in millions) is calculated
$22,170 – $308
$22,170

to give a gross profit margin of .086. The GPM of ABC SDN. BHD. is higher than that of its competitor, which indicate the company is doing well. The operating profit margin helps investors understand quality of the company in terms of how much a company makes on each dollar of sale. The formula to calculate the operating profit margin is
EBIT
Net Sales

$4,529,000
$121,592,000

which gives an operating profit margin of .037. The previous accounting period the company had OPM of .035. During this same accounting period AMR had a net loss.
The net profit margin helps investors understand how profitable a company is. This explains how much profit a company has per dollar of sales. ABC SDN. BHD. has a net profit margin of
Net Income
Net Sales

$2,707,000
$121,592,000

which gives a net profit margin of 2.22%. The net profit margin for the previous accounting period was 1.92%. This indicates that the company has produced an increase in profit per dollar from one accounting period to the next. The competitors had a net loss for the accounting period ending 2010.
Conclusion

References
Air Canada. (2010). Air

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