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
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.
By lowering selling prices across the board, Opossumtown, Inc. reduced its inventory turnover ratio, cutting the number of days to sell inventory from 174 days to 104 days; that is a 40% improvement. Opossumtown, Inc. also cut the number of days it takes to collect its credit accounts from 68 to 44 days, again that is 35% better than the previous year. The company is able to do this while cutting its debt ratio by 10% and increasing its current ratio by 25%, making it appear more favorable in terms of liquidity. As promising as this may look, this is not the whole picture. Opossumtown, Inc. shows an 11% decline in gross profit as well as operating income ratios, and a 3% decrease on the profit margin ratio. The decline of these ratios is a result of the company’s new strategy of decreasing the selling price and increasing its marketing and selling expenses. Opossumtown, Inc. made some noteworthy advancements with the implementation of its new plan for 2014. However, based on the assessment of the balance sheet, income statement and the ratios, the corporation did not achieve its goal to increase operating income by 6% and net income by 4%. Opossumtown, Inc. was only able to grow its operating income by a little more than half of one percent and net income by
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...
Another highlight of the company was the company’s gross margin, which was 32.8 in 2012, just a little more than the 31.9 in 2011 and their selling rate went down by 20.9
One look at the common-size income statements for these companies can tell a story. While Jones Apparel Group was lagging at year ended 1998, even with a restructuring charge on Liz Claiborne’s income statement, 1999 was a different story. Huge growth at Jones lead to revenues double of that one year ago while Liz, while increasing, was quickly falling behind. The growth for both of these companies continued into the year ended 2000, but Jones Apparel Grou...
1. Context: In early September’08 Giant Consumer Products, Inc. (GCP) realized that Frozen food division, which had been growing at 2.8% (compounded annual growth) rate since 2003 to 2007 and accounted for almost 33% of GCP’s overall business volume, is not doing well now. The sales as well revenue volume is around 3.9% behind the target. Most specifically marketing margin (key parameter for GCP business) was also under plan by 4.1%. GCP had been doing well in wall-street but performance of past couple of quarters has increased the worries of GCP i.e. whether GCP will able to maintain its profitable growth.
...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.
It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business.
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
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.
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...
Information on the financial statement can offer an overview of a company’s performance over the past fiscal year. However, gaining crucial investment insights requires financial manipulation that yields financial ratios.
A consolidated financial statement can be defined as the financial statements of a parent and its subsidiaries combined to form a single economic entity (AASB 10, 2011). The entity, which acquires the other entity, is known as the parent and the entity, which has been acquired, is known as the subsidiary. Consolidation financial reports arise when one entity purchases another entity, to then form a group.
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.