We will base on three criteria to analysis their financial performance and position. They are profitability, financial position and efficiency. First, we will separately analysis individual firm. Second, we will compare both firms’ financial performance. Third, we will compare the firms in the whole industry.
The return on (total) capital employed (ROCE), return on equity (ROE), gross profit ratio and net profit margin to analyze the firm’s profitability.
First, ROCE is used to measure the management’s efficiency in using available resources of an entity to generate profit. Many investors think the ROCE is the primary measure of profitability since it compares the inputs with outputs. In 2012, Wing Tai had a sustainable increase in ROCE. Since there was an increased profit in 2012, the ROCE became greater. Since the Wing Tai had sold one of its principal activities to the outsiders, the profits became greater. In this situation, the high ratio of ROCE might reflect the management’s efficiency in using available resources of an entity to generate profit, since the branded products dis...
This requirement makes it important to look through a majority of the return ratios, which include return on sales, return on assets, and return on equity. Additionally, investors are also interested in the ratios related to the company’s earnings, such as earnings per share (EPS) and PE ratio. Looking at return on sales, we can see that Wendy’s has a 7.27% return on sales and Bob Evans has a 1.23%, which demonstrates Wendy’s has a higher profit margin. Moreover, Wendys’ return on assets is 2.85% and Bob Evans is 1.58%. Also, Wendy’s and Bob Evan 's have return on equity ratios of 6.66% and 4.30%, respectively. All of these return ratios show that Wendy’s has a better handle on turning working capital into revenue. On the other hand, although Wendy’s return ratios are higher than Bob Evans, Bob Evans has a better performance on earnings per share and PE ratio. This is due to Bob Evans having less common stock share outstanding, which makes their earnings per share and PE ratio higher than Wendy’s. Due to the EPS being higher for Bob Evans, we would recommend that investors look towards Bob
Select any five (5) financial ratios that you have learned about in the text. Analyze the past three (3) years of the company’s financial data, which you may obtain from the company’s financial statements. Determine the company’s financial health.
In order to review the historical health of the firm I will calculate different ratios and gross margins and would try to see the trend. I will use Gordon Growth Model to find out the sustainable growth rate for the firm using historical data and then would compare it with its actual growth rate.
The Return on Capital Employed (ROCE) ratio is a profitability ratio that measures how well profits are being generated based on capital employed. RadioShack’s ROCE dropped down to -34% in 2013 in comparison to 10% in 2012. For every dollar of capital employed, RadioShack is losing $0.34. The dramatic dip stems from 2012’s positive earnings before interest and taxes (EBIT) of 155.1 million dollars to 2013’s EBIT of -344 million dollars. Capital employed is determined by subtracting current liabilities from total assets. In 2013, capital employed decreased by 79 million dollars. ROCE is used to view the long-term profitability of firms. A more in-depth trend analysis done over several years would need to be done to determine the
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Profitability ratios are a category of financial tools that are utilized to evaluate a company’s capability to produce revenue as associated to its expenditures and costs suffered during a specific timeframe. Profitability ratios present numerous gauges of the achievements of a company’s ability to produce revenue. For most of these ratios, having a greater figure in relation to a competitor or previous timeframe is suggestive that the business is flourishing. Common profitability ratios are profit margin, return on assets, and return on equity.
Return on capital employed (ROCE) expresses a company’s profit and displayed as a percentage of the amount of capital invested in the company. ROCE interprets “capital employed” as the total amount of money invested in the company in the long term, regardless of whether that money has been supplied by shareholders or lenders. This amount will compared with the return achieved on that capital. The results were shown that Wm Morrison Supermarkets are higher than Tesco by 4.55 per cent.
The rising trend in the gross profit margin shows that the firm is selling its inventory at a higher percentage of profit. Likewise, higher profit margin in 2014 as compared to 2013 means that the firm is earning more profits from its sales. Similarly, the rising trend in ROCE value means that it is earning higher profits for the invested capital. Moreover, the declining trend in debtor days means that it is collecting cash quickly from debtors. The similar declining trend n creditor days shows that the firm is taking utmost advantage of the available trade credit. Next, the declining trend in gearing ratio shows a low amount of debt to equity, which means lower financial risk to its business. Finally, lower stock turnover ratio reflects good inventory management within the firm(Finch,
The inventory turnover decreased from 3.8 to 3.59. This is explained by the higher increase in the average inventory (37%) than the increase in cost of sales (29%) during 2005. This means that the rate at which inventory is sold is dropping
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
Organizations use financial statements and ratio analysis assess financial performance viability. The ratio analysis are used to identify trends and to perform organizational comparison (financial) with other companies within same industry. Ratio analysis, using data reported on the financial statements, are divided into five major categories: common size, liquidity, solvency, efficiency, and profitability. This paper will assess the financial stability of John Hopkins Hospital (JHH) using the five ratio analysis.
ROCE refers to the net operating profit of a company to its capital employed, (Peavler, 2009).The chart above shows the return on capital e...
3 0.36 4 0.48 2 0.24 Financial position 0.10 3 0.30 4 0.40 3 0.30 Profit Margin 0.11 3 0.33 4 0.44 3 0.33 Consumer loyalty 0.10 3 0.30 3 0.30 2 0.20 Value added services 0.06 3 0.18 3 0.18 2 0.12 Price Competition 0.10 3 0.30 3 0.30 3 0.30 Technology 0.06 3 4 0.40 4 0.40 3 0.30 TOTAL 1.00 3.35 3.43 2.57 This comparative analysis provides important internal strategic information. Numbers reveal the relative strengths of firms, but their implied precision is an illusion. Key performance indicators Source: TRAI, Crisil Research 1.
Equity investors will look at the ROCE in order to determine if a firm is effectively deploying its capital. Having a ROCE that is in-line with its competitors will aid Barra Airways in achieving a good price for its equity, should it choose to use equity as a source of finance.
In the past, the company performance was measured by asking ‘how much money the company makes?’ To a certain extent, they are right because gross revenue, profitability, return on capital, etc. are the results that companies must bring to survive. Unfortunately, in today business if the management focuses only on the financial health of the company, numerous unwanted consequences may arise.