Ratio analysis is an efficient tool which has been used for years by bankers, financial institutes and investors to measure the financial performance of firms and organizations. 4.1.1. Current Ratio Figure 1: Current Ratio Source: IBIS World 2017, Bega Cheese Ltd Financial Report. Liquidity or current ratio measures the company capability of a company to pay its short-term obligations. As stated in table 1, the current ratio for Bega cheese Ltd was stable between the year Y2013 and Y2016 ranging between 1.5 and 1.8 percent; however, in the Y2017 the current ratio was a record high reaching 3.1 percent. The sale of one of the company subsidiaries had generated a profit and increased liquidity for Bega Cheese and enhanced the capability …show more content…
Debt Ratio Figure 2: Debt Ratio Source: IBIS World 2017, Bega Cheese Ltd Financial Report. A noticeable decrease in debt ratio was recorded in the Y2014 (figure 1), as a result of paying a large amount of the company debt. Bega Cheese announced in Y2014 it had paid $90 million of its debt after it sold its WCB (Warrnambool Cheese and Butter Factory) shares. The debt ratio is a measure of the proportion of the firm’s asset that was financed by borrowing and can be calculated as follow: Debt Ratio: (Total Liabilities)/(Total Assets) Bega Cheese maintained its debt ratio at a low level at the rate of 44% for the years of Y2015 and Y2016. In the Y2017, the debt ratio was partially higher and reached 45.7% due to the bid Bega cheese made to buy Mondelez International. However, the increase in the debt ratio wasn’t extensive despite the large number Bega Cheese offered to buy Mondelez International due to the fact that Bega Cheese had sold one of its asset, a milk dryer plants, to fund the Mondelez deal. 4.1.3. Interest coverage ratio Figure 3: Interest coverage ratio Source: IBIS World 2017, Bega Cheese Ltd Financial …show more content…
The ratios measure economic effectiveness’ (Rutkowska-Ziarko, 2015). The Y2014 witnessed a significant increase in return on asset up to 12% after the company sold 18% of its shares in Warrambool Cheese and Better. The sales generated $66M in profit before transaction cost. On the other hand, the profit generated from the same transaction helped the company in increasing its cash flow and reduce debt. Another increase in ROA was recorded in Y2017 where the annual report of Bega cheese showed that ROA ratio was 13%. The increase came out of selling another asset in addition to revenue growth despite what the company has described a year of challenging circumstances. The same can be noticed for the net profit margin ratio. Numbers show a significant increase in Y2014 where the company net profit jumped to 8,8% an increase of 5% from the Y2013, and again the Y2017 recorded high net profit of 16.1% which is an increase of 13% from the previous
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
The debt ratio is calculated using short term and long term debt relative to the total assets of an organization. The higher this figure is, the riskier a financial investment the organization is. The industry average has a debt ratio of 55%, a more promising figure than Happy Hamburger had before its increases, 68%. The debt ratio would have been considered a weakness for Happy Hamburger, but with the increased figures taken into consideration, this figure is a strength for Happy Hamburger at 39%, a more favorable figure than the industry average and indicating the organization is a less risky
This ratio helps in analysing the position of the company to satisfy its short term debts within a period of one year. The higher the current ratio would be the more the company will be in position to satisfy its short term debts.
Current ratio for Panera Bread is 1.73 in 2012 and has been fairly consistent for the past five years as shown in Table F1. Although Panera does come in just under the industry average of 1.98, a current ratio of 1.73 is a strong positive indicator. Panera can cover short-term debt obligations with its normal operations. The quick ratio of 1.65 strongly indicates Panera can cover its short-term obligations without utilizing its inventory. The company’s quick ratio is again just below the industry average, with the competitors Chipotle, Starbucks, and Einstein posting at 2.87, 1.34, and 1.00 respectively. Einstein’s current and quick ration are relatively low and should raise a change in needed.
... ... middle of paper ... ... 59 This ratio must appear on the face of a company's income statement. Nike (EPS) is up from 1.35 in 2008.
When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to liquidate its assets if operations were discontinued, and debts needed to be collected. In 2005 Wendy's had $2,076,043 worth in total assets and $846,264 in total liabilities. When divided, Wendys has the lower ratio of the two competitors at 40%. This means that they would take losses of 40% if operations were shut down, and the cash received from valuable assets would still be sufficient to pay off the entire debt. It also means that 40% of Wendys assets are made through debt. McDonalds in 2005 had $12,545.3 (in millions) of total liabilities and $22,534.5 (in millions) of total assets. After doing the math, McDonalds ends up with a ratio of 56% which is higher than Wendys by sixteen percent. This means that there is more default on McDonalds liabilities, which can be a costly event from lenders perspective. McDonalds makes 56% of all its assets through debt. In reality, its not good to have a debt-to-assets ratio over 50%. Its also not good to have a debt-to-assets ratio that is too low because...
Current Ratio – For the last three years was growing from 3.56 in 2001 to 3.81 in 2002 to 4.22 in 2003. The reason of grow is increased in Assets. Even though Liability was growing, Asset grow was more significant.
Ratios for return on assets and return on equity offer support for the loss in stockholders’ equity. Return on assets went from 13.1 in 2000 to 5.1 in 2001 and return on equity dropped from 25.4 in 2000 to 8.7 in 2001. Return on equity represents return on assets divided by the difference of 1 and debts/assets.
Apple’s debt to equity ratio is not very high compared to the industry average of 2.23. The Debt to Equity Ratio of 2014 is 1.08, in which the normal ratio should be less than 1. This ratio of 1.08 shows that the company is financing more assets with debt than equity. In spite
Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
The ratio of 1.7 for the last two years indicates consistency, although a lower number is preferred. As a company produces high value product, this could be a satisfactory ratio. By comparing it to 2011 when a ratio was 2.9, in the last two years a ratio improved
This bar graph is showing that the trend is sporadic from year to year. This ratio shows the company’s total sales that are available for financing and supporting the company’s ongoing operations. Large ratios are needed to show that the company is in a better place to develop than its rivals. Kraft Food Group has room to grow in this
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.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Debt/ asset ratio of Nestle was increase in the 3 years. It is a high ratio, means that it has a high level of indebtedness as it total liabilities were rise more than total assets. If liabilities continue rise and reach a very high level, Nestle will not able to meet its obligation as assets cannot cover its debt. It is why some company was become bankruptcy and unable to repay the money they borrow thus this amount becomes bad debts. However, Duty Lady Milk has low indebtedness compared to Nestle. In 2013 and 2014, Duty Lady Milk tries to maintain its indebtedness level.