The five most significant ratios are: Current Ratio, Debt to Equity, Debt to Assets, Gross Margin, and Inventory Turnover. I chose the current ratio to see the ability Grainger has to pay its bills. A company must be able to successful pay its debts in order to substantiate growth. As of the end of 2014, Grainger had $2.35 in current assets for every dollar of current liabilities. “It generally indicates good short-term financial strength,” according to GuruFocus.com. (GuruFocus.com, 2015)
The debt to equity ratio and debt to asset ratio are used as valuable ratios to see how much debt the company has. According to csimarket.com, Grainger is the best in the industry for debt ratios. (csimarket.com, 2015) A low amount of debt signals financial
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Grainger is second in the industry for gross margin. (csimarket.com, 2015) The last ratio is the inventory turnover ratio, this will determine if Grainger is successful at converting inventory into sales. Again, Grainger is rated number two amongst its industry. (csimarket.com, 2015) “It is the relationship between gross margin and inventory turnover rate that is important. As margin declines, the rate of sales must increase to maintain a constant level of gross profit,” stated Gary Wright, Sales Incorporated. (Sales Incorporate, Gary Wright, 2012)
Grainger’s financial ratios are a strength for the company. In nearly every ratio that was researched the company is a leader in their industry. According to Morningstar, “the (stock) rating compares a stock 's current price with our estimate of the stock 's fair value.” (Morningstar, FAQ: for Morningstar Rating for Stocks, 2015) W. W. Grainger has a four star Morningstar rating, which leads their industry. Grainger’s financial stability will have an impact on the success of their future
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(encyclopedia.com, W.W. Grainger, 2015) The plan was to last three years. The company’s goal was to “streamline it’s sales force and eliminate redundant inventories.” (encyclopedia.com, W. W. Grainger, 2015) There were many cost factors related to the reorganization and did effect the company’s bottom line. “Costs related to the reorganization and upgrades to information systems contributed to lower gross margins in the mid-1990s.” (encyclopedia.com, W. W. Grainger, 2015) Because of the reorganization stock prices did fall, however, it was just a short time period and they bounced
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
...s are doing well and over the many years have gone up. The company has not lawsuits currently pending which is good. The company as a whole seems to be growing even when the market is down.
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
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.
Having a high gross profit margin of 76%, !!!!!! will allow us to provide high returns to our investors and make the company very attractive for any potential investors.
...strategy when the initial downsizing failed to take them out of the red or gain back lost market share.
...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)
It provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms.
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
At the Maytag shareholders’ meeting held on May 9, 2002, many shareholders were anticipating an interesting meeting. There were many questions that needed to be answered and Ralph Hake would be the one to answer the questions and ease the shareholders’ mind. Ralph Hake, Chair and CEO of Maytag Corporation, made his speech and voiced two goals. These goals were to return the corporation to the historic earnings levels under Leonard Hadley and exceed those earnings. These goals would take the effort of everyone within the Maytag Corporation to make this possible. His speech spoke of problems that the company had encountered and was addressing. They were not going to let the company lose anymore customers or market share.
used to finance the company. The asset-to-equity for Kraft Food Group is up and down. This is a weakness that needs to be addressed.
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.
The return on equity ratio is calculated by dividing the net income minus dividends by the equity. Per the Principles of Accounting textbook, “return on equities ratio enables the comparison of capital utilization among firms…this can help assess of effective the firm is in using borrowed funds”. Kinder Morgan’s return on equity ratio for December 2015 was .59%. In 2013 the ratio was 9.14% and in 2014 it was 3.01%. The return on equity ratio, like the return on assets ratio significantly declined over the past three years. One significant decrease to cause this decline is due to the deterioration of net income. Kinder Morgan’s net income from 2013 to 2015 was $1.19 billion, $1.02 billion, and $240 million successively. This sharp decline in net income can cause misplaced judgment on the decline of the debt ratios. When Kinder Morgan had a much higher income, their debt ratios were much
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.
... show that the company is growing and expanding, property and inventory, as a percentage of assets, should be increasing instead of decreasing. More property and inventory, if it is not owned by creditors, would also decrease their debt to total assets ratio.