Ratio Analysis: Financial Analysis Of P & G

Typically, net profit is measured on a quarterly or annual basis. When compared with a company net profit during other periods, it can provide a useful measure for how profitable a company is over time and the overall performance of the company & management team.

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

The profitability ration in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins

Secondary information is collected for this case. This case study limited only one techniques of financial analysis that is Ratio Analysis and also taken a single company. Thus the conclusion of the analysis carried out in a professional manner will be able to correctly describe the evaluation of the company and to substantiate the user’s decisions.

This measures the relationship between net profits and sales of a firm. The net profit margin is indicative of management’s ability to operate the business with sufficient success not only to recover revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also leave a margin of reasonable

Profit Margin: -This ratio relates the operating profit to the sales value (Walker, 2009). It tells us the amount of net profit per pound of turnover a business has earned.

Profitability ratios show us whether the companies has the ability to generate profits from its operations. These ratios are important to the company as well as its investors. Profitability ratios let us know the overall performance and efficiency of the company. This includes

Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.

Ratio analysis is a very useful tool when it comes to understanding the performance of the company. It highlights the strengths and the weaknesses of the company and pinpoints to the mangers and their subordinates as to which area of the company requires their attention be it prompt or gradual. The return on shareholder’s fund gives an estimate of the amount of profit available to be shared amongst the ordinary shareholders; where as the return on capital employed measures an organization 's profitability and the productivity with which its capital is utilized. Return on total assets is a profitability ratio that measures the net income created by total assets amid a period.

The profit margin ratio demonstrates the ability of a company to increase the percentage of net income earned for every dollar of sales. For example: “this ratio shows the percentage of each sales dollar earned as net income”. (Harrison Jr., Horngen, Tomas, 2013) The Hershey Company was able to increase the profit margin ratio from 10 percent in 2012 to 11 percent in 2013. The increase in profit margin from the previous year 2012 shows that the performance of the company is increasing which means that revenue is increasing or expenses are decreasing. Furthermore, The Hershey Company is managing their performance efficiently and this is directly reflected in profit margin ratio.

Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.

Profitability ratios refer to the relative measure to what an actual created profit. Through these ratios the company is allowed to see how profitable the company. In addition it can serve as an examination of the overall performance of the company’s operations and how do these compare to past performances or other companies. The ratios in which accounting measures the profitability of a company are Profit Margin, Price over Earnings, Return on Equity and Return on

The calculation of ratios is the calculation technique for analyzing a company’s financial performance that divides or standardize one accounting measure by another economically relevant measure. Financial ratios can be used as a tool to demonstrate financial statement users for making valid comparisons of firm operating performance, over time for the same firm and between comparable companies. External investors are mostly interested in gaining insights about a firm’s profitability, asset management, liquidity, and solvency.

Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.

Profitability ratios are the financial statement ratios which focus on how well a business is performing in terms of profit. These ratios are used to find out a business’s earnings relevant to its expenses and other costs during a specific period of time. It can be said that the company is doing well when they have a value higher compared to a