1. Explain the Equity Ratio from the Balance Sheet, how it is calculated and what information about the company it conveys.
The equity ratio is a financial ratio taken from the balance sheet, and, is an indicative of the proportion of equity used to finance the assets of the company.
Equity ratio is calculated by dividing the shareholder’s equity to the total assets.
Equity Ratio = Shareholder’s Equity / Total Assets
For instance,
• Low equity ratio means high risk to creditors.
• High equity ratio shows high contributions of the shareholders into the capital.
It is important to maintain a reasonable equity ratio, by the reason, that the level of leverage provides access to obtain loans or capital requirements from financial institutions, therefore, more valuable options in the interest rates are offered.
2. Explain why analyzing a company’s performance is more than about the numbers.
Reaching a successful analysis of the company performance is more than annual reports, environmental issues provide additional information in how the company is been affected by the market place.
Now a day, Internet provides accessible and relevant information about the market place of the company. The aspects that has to be taken by an investor are:
Competitors (direct and indirect) How and what competitors are doing? In order of obtain information about new products, new strategies or technology announcements that would have an impact in the market.
Furthermore, Marc Zuckenber is a real example, why to invest in a new company that is not even generating profits? That’s exactly what he did with Snapchat. The reason to invest in such an unvalued company for him is to monopolize in certain point the social media, avoiding competitors. Is not a...
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...el, legal fees, accounting expense, insurance, depreciation, leasing commissions.
• Operating Income/Loss is the result of deducting Operating Expense from Gross profit. The Operating Income is representing the earnings of the company in a regular basic before to pay Interest or Taxes.
• Non-Operating Income/Loss is related to the interest paid for the company, and special items or Extraordinary Expenses like restructuring charges that are unusual have to be allocated in the non-operating Income. Extraordinary Expenses are watched carefully, considering, that are one time charge that can take a bite form profits.
• Income taxes are an estimated of the Federal, State or Municipal taxes that are going to be paid.
• Net Income is the bottom line that shows the profitability of the company. It is calculated by deducting Total Operating Expenses from the Gross Profit.
This ratio is calculated by dividing (short-term debt plus long-term debt) by (short-term debt plus long term-debt plus shareholder?s equity). Based on data shown in page 70 of their 2015 Financials.
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.
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.
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 is very useful to for understanding the message of the financial statement. It helps to enlarge the financial health and reveals the performance of a business and makes it possible to forecast about future state of the business by studying the historical data.
Data on the income statement includes quarterly (one-year) time range and discloses the costs and revenues of the company, net income and deductions from it in the reserves, the payment of dividends and so on. From these data it is possible to obtain information about the value and dynamics of the value of output, its cost and the financial condition of the company and for the previous reporting
The total net sales (sales of products and services) shows that Raytheon is providing more products and services to it consumers over the course of the three year period. The total operating expenses (costs of goods sold + general and administrative expenses) increase over the three year period is an expected result due to the increase in net sales for the same period. The operating income (total net sales-total operating expenses) shows a decrease from 2014 to 2015 and then an increase from 2015 to 2016. This is primarily due to a large increase in the general and administrative fees associated with the respective years.
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
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.
Debt-to-equity ratio: The debt-to-equity ratio for 2010 is $3,738,150/ $4,781,471=.782. For the year 2011, the debt-to-equity ratio is $2,722,811/ $5,672,551=.478. This number is calculated by Total Liabilities / Owners’ Equity
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.
Understanding the meaning of financial ratios is imperative to different stakeholders both within and outside of a company. Management reviews different ratios to measure how effective the strategies used to run the business are within a given time period. Money Managers and other types of investors use ratios to determine investment strategies in different types of companies. The use of the ratios helps give a consistent look at different types of businesses whether large or small and determine profitability and return on equity. The purpose of this paper is examine liquidity ratios as applied to three companies and gain understanding of how the ratios studied disclose liquidity positions.
Income statements are set up stepwise. Starting at the top we see the total amount of sales made during the accounting period. As you go down, you subtract costs and additional operating expenses related to producing the revenue. After subtracting all expenses, you learn how much your company netted or lost during the accounting period. This is our “bottom line.”
Below in figure 1 the financial performance regarding operating profit and net profit is shown .
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.