Profitability Characteristics: The Financial Analysis Of A Company

1407 Words3 Pages
bulb-icon

Recommended: Write a short note on liquidity ratios

FINANCIAL ANALYSIS

The financial analysis of any company involves the calculation and comparison of ratios which came from the information given in the company’s financial statements. Under this ratio there are four kinds of ratios which we calculate generally:

i. LIQUIDITY RATIOS:
The term liquidity means cash in hand which a firm required to meet its short term obligations. The ratios which come under this category are Current ratio, Quick/ Acid-Test ratio, and Cash ratio.

ii. PROFITABILITY RATIOS:
Profitability ratios are used to measure the company’s performance in terms of profit earned by the company after deducted all costs & expenses. Common profitability ratios which are used to measure the company’s profitability are- Return on assets (ROA), Return on equity (ROE), Return on investment (ROI), Return on sales (ROS), Operating margin (OM) and Gross profit margin (GPM). iii. …show more content…

ACTIVITY/TURNOVER RATIOS:
Activity or turnover ratios are used to determine the operational efficiency of any industry, these ratios used to know that how quickly certain current assets can be converted into cash. The generally used activity/turnover ratios are- Debtors turnover ratio, Inventory turnover ratio, Average collection period, Fixed assets turnover ratio and Total asset turnover ratio.

iv. LEVERAGE RATIOS:
Leverage ratios tell us about the financing method of any company. Basically leverage ratios used to measure the long-term solvency of a firm. The commonly used leverage ratios are- Debt-equity ratio, Debt-asset ratio and Debt to total capital ratio.

RATIO ANALYSIS OF AXIS BANK VS HDFC BANK:

In this report we are comparing Axis bank with HDFC bank by calculating the ratios of them.

AXIS BANK HDFC BANK
RATIOS FY2013 FY2014 FY2013 FY2014
LIQUIDITY RATIO:

(I)Current ratio

(II)quick ratio

PROFITABILITY RATIO:
(I)Return on assets

(II) return on

Show More
Related

  • Analysis Of Wendy's Corporation And Bob Evans Farms

    1011 Words  | 3 Pages

    Suppliers are mostly concerned with a company 's ability to pay on their liabilities. Therefore, the current ratio and the quick ratio are both looked at by suppliers. The current ratio takes a company’s current assets and divides that by the company’s current liabilities. This number is

    Read More

  • Bestcare Health Maintenance Organization Net Working Capital

    579 Words  | 2 Pages

    Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal

    Read More

  • Financial Raticiet Analysis: Kohl's Financial Information

    1039 Words  | 3 Pages

    The analytical formats used in response to question number 3 are threefold; 1) trend analysis, 2) common size analysis and 3) percentage change analysis. The rationale for this three-fold approach is that all other ratio analysis is derived from these three. The utilization of trend analysis aids in giving clues as to the financial status of the company is likely to improve or deteriorate. Likewise, the common size analysis relates to the fact that all income statement items are divided by

    Read More

  • Urban Outfitters Case Summary

    631 Words  | 2 Pages

    It is a profitability ratio and it calculates the ability of the company to produce profit from the investments of its shareholders. It shows the profit generated by each dollar of shareholder’s equity. It is important ratio because investors always see that how efficiently and effectively the management of the company is using their wealth to generate profit.

    Read More

  • Harley-Davidson Performance Analysis

    1508 Words  | 4 Pages

    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.

    Read More

  • Panera Bread Ratio Essay

    830 Words  | 2 Pages

    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.

    Read More

  • Ratio Analysis Of Starbucks

    1252 Words  | 3 Pages

    In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.

    Read More

  • Financial Analysis of Three Supermarket Chains

    966 Words  | 2 Pages

    ...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)

    Read More

  • Ratio Analysis Essay

    519 Words  | 2 Pages

    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.

    Read More

  • Financial Analysis Of Rolls-Royce's Financial Ratio Analysis

    1377 Words  | 3 Pages

    This financial ratio analysis will help to identify Rolls-Royce’s strength and weaknesses during three years period from 2011 until the end of 2013. While it is a helpful tool for investors to make investment decisions base on profitability of the company, managers can make strategic decisions of the company. However, there are some limitations in using financial ratio analysis alone when make decisions. Comparing ratios with the industry norm and with the company’s rivals, the user of the financial ratio analysis will be able to anticipate future prospects. Rolls-Royce’s nearest rivals are General Electric (GE) and Pratt & Whitney, owned by United Technologies Corporation (UTC). These world 's top three companies are investing massively in R&D to satisfy demand of a booming global market for environmentally cleaner, energy efficient power engines that result in a huge number of orders of commercial airliners. All top

    Read More

  • Financial Analysis of Verizon versus AT&T

    1338 Words  | 3 Pages

    This section will discuss ratio analysis for the following ratios: current ratio, quick (acid-test) ratio, average collection period, debt to assets ratio, debt to equity ratio, interest coverage ratio, net profit margin, and price to earnings ratio. Depending on the end user which ratio carries more importance, however, all must be familiar with ratio analysis. Details on each company's performance for each of these areas can be found in the attached ratio analysis worksheet.

    Read More

  • Financial Ratios, Discriminant Analysis and the Prediction of Corporate BankruptcyANKRUPTCY – ARTICLE SUMMARY

    872 Words  | 2 Pages

    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.

    Read More

  • Comparison Between Motors And General Motors

    1453 Words  | 3 Pages

    Profitability ratios express ability of the company to produce profit. This shows how well a company is performing in a given period of time. To compare the profitability for the companies, the investors use profitability ratios that are return on equity, profit margin, asset turnover, gross profit, earning per share. Return on asset indicates overall profitability of assets. It is the relationship between net income and average total assets. GM has 0.034 and Ford has 0.036. This indicates Ford is more profitable. Profit margin is how much of every dollar of sales the company keeps. Computing profit margin, net income divided by net sales. This indicates higher profit margin is more profitable and it has better control. Thus, GM’s profit margin is 3.4 percentages and Ford’s is 4.9 percentages. This indicates Ford has better control profitably compared to GM. Next ratio is gross profit rate. It is how much of every dollar is left over after paying costs of goods sold. Assets turnover represents how efficiency a company uses its assets to sales. This ratio is relationship between net sales and average total assets. GM’s is 0.98 and Ford’s is 0.75. This result represents GM is using its assets more efficiently. Gross profit margin is dividing gross profit, which is equal to net sales less cost of gods sold, by net sales. This ratio indicates ability to maintain selling price above its cost of goods sold. GM’s gross profit rate is 11.6 percentages. Ford’s is 5.7 percentages. GM is higher ratio, and it indicates strong net income. Also, it indicates the company has to spend lower operating expenses and the company is able to spend left money for covering fixed costs. Earnings per share indicate the company’s net earnings to each share common stock. This ratio shows margin between selling price and cost of goods sold. From these companies’ income statement, GM is $2.71 and Ford is $1.82. Because GM’s value is higher relative to Ford’s,

    Read More

  • What Is Debt To Equity Ratio?

    1225 Words  | 3 Pages

    Leverage ratio is a ratio that shows some part of the overall capital and funds spent by debt. Analysis tools used are Debt to Equity Ratio (DER) and Debt Ratio (DR). Debt to Equity Ratio is the comparison of amount of debt to total capital. This ratio shows the ability of a company to meet the overall debt by using their own capital. Meaning, if at any time the capital liquidated, the company has been able to meet both short-term liabilities and long-term liabilities (Muqorobin & Nasir, 2009). Second indicator in Leverage Ratio used in this study is Debt Ratio (DR). Debt Ratio is a comparison of total debt to total assets that aims to measure how much the entire debt is secured by the company.

    Read More

  • Profitability Analysis: A Comparative Study Of SAIL And Tata Steel

    2091 Words  | 5 Pages

    Efficient working capital management is necessary for achieving both liquidity and profitability of a company. A poor and inefficient working capital management leads to tie up funds in idle assets and reduces the liquidity and profitability of a company. Working capital management efficiency is vital especially for manufacturing firms, where a major part of assets is composed of current assets. For an intensive study of working capital management of Indian steel industry focus of the study is on major and significant players of the industry of public and private sector via Steel Authority of India Ltd., Tata Steel Ltd, JSW Steel Ltd. and Essar Steel Ltd. The objective of this study is to measure working capital managing efficiency of selected Indian steel companies for which different activity ratios are used in appraising the efficiency of selected companies. Cash Conversion Cycle (CCC) is a powerful measure for assessing how well a company is managing its working capital. It is used as a comprehensive measure for working capital management and to analyse profitability and performance of selected companies inter firm comparison is done to their judge performance. The ratios of ROCE, assets turnover and

    Read More

More about Profitability Characteristics: The Financial Analysis Of A Company

Open Document