Google vs. Yahoo Financial Analysis Essay

The Activity ratios help to determine the company’s ability to convert different sectors of the balance sheet into cash or sales (Potter, Libby, Libby & Short; 2010). The ratios used under this test are; Days inventory, Days Receivable, Fixed Asset Turnover, Total Asset Turnover and Days Payable.

Liquidity ratios measure the capability of a business to cover expenses and meet its current and long-term responsibility. These ratios are imperative in order to keep the business alive. Lending institutions are typically unwilling to loan money to a business that finds itself in a cash flow jam, because that is often a sign of poor management. The liquidity is measured with 3 different ratios; current ratio, turnover – of – cash ratio and debt- to equity ratio.

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

I. Rate of Return on Total Assets: Measures the company’s profitability relative to total assets. A percentage increment for Company G, from 12.30% to 13.68% (2011-12) keeps them above industry benchmarks (8.60% and 12.30%). Rate of Return on Total Assets represents strength for Company G.

The inventory turnover ratio "measures the number of times on average the inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period" (Kimmel et al, 2007, p. 292). This indicates how quickly a company sells its goods and a high ratio "suggests that management is reducing the amount of inventory on hand, relative to sales" (Kimmel et al, 2007, p. 287).

Return on Assets shows the Company’s ability to generate a profit based on assets and equity. In 2009, the Company’s profit margin was 3.07% and in 2011 it had fallen to 1.91%.

5. Inventory Turnover: This ratio is rendered by taking the cost of goods sold, for a time period, divided by average inventory. This shows how many times a firms inventory is sold and replaced during the period of time that it is calculated for.

Liquidity ratios measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity

Liquidity ratios measure the ability of a firm to meet its short-term obligations. A company that is not able

These ratios help company in determining its capability to pay short-term debts. Liquidity ratios inform about, how quickly a firm can obtain cash by liquidating its current assets in order to pay its liabilities. General liquidity ratios are: current ratio and quick ratio. Current ration can be obtain by dividing company’s current assets by its’ current liabilities. Generally a current ratio of two is considered as good (Cleverley et al., 2011). Quick ratio also known as acid test determines company’s liabilities that need to be fulfilled on urgent basis. Quick ratio can be obtained by dividing quick assets by current liabilities. Quick ratio is considered as stricter because it excludes inventories from current assets. Generally a quick ratio of 1:1 is considered as good for the company. Higher quick

Asset utilization ratios measure how quickly a company is able to turn over their receivables, inventory, and other assets. The faster the company is able to turn over their assets, the more efficiently the company is running because they

The liquidity ratios assess debt financing. Retaining a larger amount of higher working capital, Google has a greater current ratio that Apple. Similarly, the

Equity turnover rare is increasing. It means that company is producing more revenue with the investment.

This group of ratios emphasis can easily indicate the Amcor’s capability to meet short term debt obligations. Current ratio and Quick ratio will be calculated in this part. These two ratios are quite similar, short term creditors, such as bankers and suppliers are interested in this class of ratios, because they can measure the short term debt-paying ability of company.

The liquidity ratios are a group of ratios that show the relationship of a firm’s cash and other current assets to its current liabilities. This basically means that the ratios measure how well the company is able to pay its short-term obligations and how well they can confront unexpected needs for cash.