Financial Statement Analysis
Financial ratios are used by stakeholders to determine how firms have improved or declined during a given reporting period. These stakeholders consist of owners, managers, investors, creditors, and others. All interested parties must be able to analyze the complex financial information reflected in financial statements in order to make informed business decisions.
Key metrics
Profitability is a key factor in determining a firm’s financial health. The ability of a business to generate earnings determines its long term viability. Management and stockholders alike, enjoy increased profits, capital gains, and handsome dividends. None of these are feasible unless a firm is able to turn a profit from its day-to-day operations. A company’s net profit margin ratio is a measure of the net income generated by each dollar of sales (Gibson, 2012). GM managed a modest 4.5% in 2010 with a jump to 6.1% in 2011 only to fall back to 4% in 2013. This could be an indicator that input costs need to be addressed.
The operating income margin ratio reveals company’s efficiency at controlling the costs and expenses connected with day-to-day business operations. A company such as GM with diverse sources of income should consider their operating income separately in order to measure profits generated by manufacturing, merchandising, and services as these items are their key competency. If they are not profitable in their core activities then major adjustments must be made in order to remain solvent. GM had an operating income margin of 5% in 2010 and 2011 and gained 2% in 2012 to reach the 7% mark. The increase in operating income margin in 2012 is a good sign that GM has improved their efficiency in their core competency. ...
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...anagement Accounting, August 1990.
GM Balance Sheet. (n.d.). Yahoo Finance. Retrieved January 31, 2014, from http://finance.yahoo.com/q/bs?s=GM+Balance+Sheet&annual
GM Cash Flow. (n.d.). Yahoo Finance. Retrieved December 31, 2013, from http://finance.yahoo.com/q/cf?s=GM+Cash+Flow&annual
GM Competitors. (n.d.) Yahoo Finance. Retrieved January 31, 2014, from http://finance.yahoo.com/q/co?s=GM+Competitors
GM Income Statement. (n.d.). Yahoo Finance. Retrieved January 31, 2014, from http://finance.yahoo.com/q/is?s=GM+Income+Statement&annual
Ford Balance Sheet. (2013). Yahoo Finance. Retrieved January 31, 2014, from http://finance.yahoo.com/q/bs?s=F+Balance+Sheet&annual
PEG ratio useful but not perfect. (2013). Dow Theory Forecasts, 69(12), 1.
TM Balance Sheet. (2013). Yahoo Finance. Retrieved January 31, 2014, from http://finance.yahoo.com/q/bs?s=TM+Balance+Sheet&annual
...ense has decreased 82.8% from 2000 to 2004. All the above are contributing factors in Applebee’s achieving higher earnings, a 75% increase in net earnings from 2000 to 2004. Average shares has fall due to consistent share repurchasing programs by Applebee’s. Overall, the common-size analysis of the income statement are relatively consistent over the five years of study. Cost of goods has stayed consistent between 74%-75%, the Depreciation and amortization is between 9%-11%, income from Continue operations and Net Income are also both between 9%-10% in common-size analysis for income Statement. No unusual flutuations has been discovered.
Speedster Athletics Company has been able to generate favourable gross margins over the last three years consistently over the industry average of 26%. Gross margin is in a declining trend over 2010 to 2011 where 2011 gross margin is 27% (1371/5075*100%) which is 1% lower than 2011, however this is above the industry average level, proving that Speedster company is capable of generating better margins.
WMC’s accounting practices incorrectly attribute fixed manufacturing costs to the three Detroit groups in a proportional manner, leading to Group 3’s lack of profitability. Discontinuation of Group 3 pushes a greater percentage of the fixed costs to the other groups impacting their ability to be profitable. Additionally, WMC does not consider the degree to which production at the Detroit plant contributes to the operations and profitability of the other plants. Presently, each plant is accounted for individually. WMC should reevaluate and consider the...
The first analysis will be on Verizon. The current ratio and the debt to equity ratio both improved in 2006 when compared to 2005. However, the net profit margin dropped from 9.8% to 7.0%. What does this tell us as investors...
Financial ratios are "just a convenient way to summarize large quantities of financial data and to compare firms' performance" (Brealey & Myer & Marcus, 2003, p. 450). Financial ratios are very useful tools in order to determine the health of a company, help managers to make decision, and help to compare companies that belong to the same industry in order to know about their performance.
Shareholders are more concerned with the company’s financial stability, productivity and cash flow projections versus other internal financial facets of Henley Manufacturing. Hence, it would be within reason to make recommendations based upon the information presented. Goals to be recommend incudes annual sales growth which is expected to increase by 15% in the next year, and the earning potential which is expected to grow by 20%. Additionally, shareholders would also be interested in the return on net tangible assets which is anticipated to increase by 16% and the return on common equity which is projected to increase by 20%. Furthermore, importantly, shareholders are also very interested in the company minimum profit margin which is expected to be 5% (Revsine, Collins, Johnson, Mittelstaedt, & Soffer, 2015). The profit margin informs shareholders how much proceeds earned from sales exceeds costs incurred in the
Industry profitability: subpar to above average; fuel and maintenance costs, a growing senior staff division, unionisation of employees and competitive price wars are margins concerns.
Financial statements play a significant role in providing insight into Landry’s Restaurants financial condition. Is the liability or cost high and can one see continued improvement in revenues each year are questions answered when analyzing financial statements. An investor can use financial statements in making a decision to invest in a company. By examining the different financial statements, one can identify Landry’s Restaurants has grown over the past five years. Comparing assets, liabilities and owner equity, one is able to determine Landry’s Restaurants is making a profit.
Ratio of profitability is distinct to examine a firm’s ability to produce cash flow which is comparative to some metric. This is to establish the amount invested in the company. This ratio analyses and a...
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,
Good income statement performance is a measure of how well the company manages its core business. Although the balance sheet ratios, such as the current and debt/equity ratios, are declining slightly, the ROA, ROE, and ROIC are increasing, which is a good sign of resource management as well. 3G has noticed the opportunities for creating a synergistic venture between Burger King and Tim Hortons to become the third largest global quick service restaurant company. 3G can capitalize from Burger King’s global branding to bring Tim Hortons to locations it could not have broken into otherwise. A bonus is the location of 3G and Tim Hortons’ headquarters; both are in Oakville Ontario, Canada, which provides the company with a tax benefit and opportunities for more strategic endeavors. (Scharr and Rowe,
Analyzing the company’s gross profit margin over the last three to five years, not much has changed. In 2010, the gross profit margin reached its height in the fourth quarter, with 41.56%. In 2011, the
The proforma trend for 2007’s gross margin remained at 28.5%. These larger COGS would continue to effect the organization to the 2007 year. However, it should be noted that the ROE for Brodie Industrial Supply was larger than the industry average at 47.5% compared to the industry at 14.4%. This difference can be attributed to the expansion of their faculties as well as their sustainable growth which occurred from 2004 to 2006. The 2007 trend indicates that profitability will slow down but would still have significant growth in the 2007 year.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
Through Dupont analysis, we have been able to see the specific strengths and weaknesses of BMW and Audi’s management. BMW’s lower profit margin and asset turnover indicate less efficient cost management and asset management. Their debt multiplier indicates that they’re taking advantage of debt, but the benefit of this isn’t realized because of their problems with cost and asset management. Due to Audi’s more efficient use of their assets, and better cost efficiency, it can be said that their management has performed better than BMW’s over the past year.