Ratio And Financial Ratios : Performance, Profitability, Efficiency, And Solvency

As well as if the company is good for issuing a loan, or investing in some other fashion such as bonds. For better breakdown these ratios have been separated in three categories: Measure of Profitability, Measures of Liquidity, and Measures of Solvency.

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 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

JC Penney's gross profit ratio is better than Kohl's gross profit ratio by almost 1% (39.2% - 38.2%)

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 5 year average for Operating Margins is 15.61% over the industry average of (-2.22%). I would once again reference that the operating margins are high because of HD’s foot hold in their industry which is also echoed in their Net Profit margin ratio of 7.86% over the industry comparison of (-0.48%). Comparisons for Pre-Tax Margin Ratios are 12.5% to the industries (-0.46%). This is a good indication

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.

Even though both McDonalds and Wendy's, their profitability appear to be stable, we analyze that Wendy’s had a better financial performance due to strong income performance as it has lower Total Debt to Assets Ratio than McDonalds. Based on the income statements and profitability ratios of the both McDonalds, and Wendy's, their profitability appear to be stable. Considering general average net profit margin of fast food industry that is 5 percent to 6 percent, both McDonalds, and Wendy's are profitable because the average net profit margin of McDonalds in 2016 is 19% when the average net profit margin of Wendy's in 2016 is 9 %. Even though Wendy’s profitability that is based on the ROE is greater than McDonalds, Return on Assets clarifies

Financial ratios can be used for a quick comparison to other companies in the industry and to the same company over time. They allow you to ignore the numbers and focus on their relationships.

2013 was a bad year for GameStop with a negative operating cost and net profit. Over a five year period, their gross profit margin has increased. Which indicate how well GameStop is performing at generating profits or revenues relative to a certain metric. The

1. As a small business owner, the ratios that I will find to the best important are the ones pertaining to my needs. These include liquidity ratios and profitability ratios, both of which are common to all businesses (Loth, 2012). The business will focus on these because they relate directly to cash flow and working capital. The liquidity of the company is also going to be important to bankers who are lending the company money and also the profitability ratios are going to be important to shareholders, not to mention the production managers who need to control costs and the marketing managers who need to set prices. These ratios are common to larger corporations, but large companies will also look at other ratios that my business might not worry about so much, like the investment return ratios (ROA, ROE) and the debt ratios. The small business is more concerned with the cash flow aspects of debt than the capital structure and cost of capital. Thus as a small business there is going to be more emphasis on specific types of ratios while not worrying about other types.

Through indicating the profit margin, return on assets and return on equity to measure sales, assets and other factors, shareholders also can know the global profit performance of the firm and indicate that how the condition of company is.

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.

It is without a doubt that financial analysis and profitability ratios are key performance indicators and perhaps the first that pop to mind when thinking of the successfulness of a venture (PwC, 2007). They are in fact the easiest to use in order to judge how good the company has been performing with regards to selling their goods/services with a profitable margin. For instance, Reid and Smith (2000) conducted a research with 150 new small sized companies and tried to cluster them into high, medium and low performing organizations according to certain characteristics of