Choice
Yahoo! Inc. (sign yhoo) and Google Inc. (goog) were selected. Industry is „ Internet information providers“ and sector „technology“, by yahoo terminology (finance.yahoo.com January 5 2014). Google.finance uses sector: „techology“ and industry: “search engines“. (www.google.com/finance, January 5 2014) In literature it is advised to compare firms of „roughly the same size“ and „similar products and services“ (Moles, Parrino and Kidwell 2011:116), which is modestly achieved, as size ratio between companies changes substantialy during 5 years.
For bouth companies, balance sheets and income statements were downloaded from www.marketwatch.com (The Wall street Journal, January 8 2014). In that source, data on 5 years (instead of required 4) were provided, which would enable calculations of some average ratios where values in the beginning end the end of a year are necesarry. This was not used, and all calculated ratios were done with end year data.
It is noticable that the numbers provided by www.marketwatch.com are given with different precision, but generally with no more that 2 significant digits. This is though neglected in further calculations, and no statistical interpretation of significant digit is given. Clearly, this implies that rounding mistakes are unavoidable.
As not all data from Balance Sheet (BS) and Income satement (IS) is necesarry for required ratio calculations, for the purpouse of easier display some rows are hidden.
Picture 1 shows income statement and picture 2 balance sheet in their simplified form, with some rows hidden. Rows that are not shown are mostly the ones with no dana (zeroes), the ones that are allready included in other numbers and some rows less relevant for calculating given ratios. Rows used for direct calculations are designated with colours, to be more easyly visible.
Picture 1, Balance sheet, Yahoo! Inc. (YHOO) and Google Inc. (GOOG), Y:2008-2012
Picture 2: Income statement Yahoo! Inc. (YHOO) and Google Inc. (GOOG), Y:2008-2012
Profitability ratios
Profitability ratios measure „management´s ability to make efficient use of firm´s assets to generate sales and manager firm´s costs“ (Moles et al 2011:132).
Operating margin (OM)
There are some variations regarding the use of Operating Margin. So „operating profit is tipically measured with EBIT“. (Moles et al 2011:132). Also,: „ Often non-recuring cash flows are excluded as they don´t represent company´s true performance“ (Valueclick, 5 January 2014). Mathematically looking, when computing a ratio, in the denominator of formula 1, net sales are present. Number in the numerator should thuse also be a number coneccted to sales in some way.
Troy, PhD., Leo. Almanac of Business and Industrial Financial Ratios. 30th edt. (1999) (page 159) Paramus, NJ: Prentice Hall.
The Securities and Exchange Commission requires that publicly owned businesses provide annual reports, which are available to the public. Many different people use annual reports, to make informed business decisions. Management from the company uses the information to determine a number of items. Some of these items are the profitability of the company, the inventory turnover rate, and the accounts receivables rate. Creditors use the annual report to determine how well a company can satisfy its current liabilities, as well as, how the company is doing in the aspect of long tem survival. Another group of people who use the annual reports furnished by companies are the investors, who can purchase shares of stock from the publicly company. Annual reports are very important to these people, because they are an over all picture to help them determine the over all stability and reliability of the company’s financial outlook. These annual reports are important because they do not only contain the financial statements of the company, but there is a management ‘s note to discuss reasons for any unexpected numbers, and an auditor’s report, from an independent accounting firm, who either agrees or disagrees with the financial numbers. Market reporter Matt Krant said, “Ignoring these reports is akin to driving down the freeway blindfolded.”
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 two companies that I will be comparing in this project are McDonalds and Wendys. Both of these companies are competitors in the same industry. I am using the information from their 2005 Financial Statements.
I will be comparing five types of financial ratios through statement of comprehensive income and balance sheet, as follows:
Gross profit ratio is a profitability ratio that shows the relationship between gross profit and total net sales revenue. The ratio is computed by dividing the gross profit figure by net sales. The basic components of the formula of gross profit ratio are gross profit and net sales. Gross profit is equal to net sales minus cost of goods sold. Net sales are equal to total gross sales less returns inwards and discount allowed. The information about gross profit and net sales is normally available from income statement of the company. The ratio can be used to test the business condition by comparing it with past years’ ratio and with the ratio of other companies in the industry. A consistent improvement in gross profit ratio over the past years is the indication of continuous improvement. When the ratio is compared with that of others in the industry, the analyst must see whether they use the same accounting systems and practices.
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
... organization's management. The ratios were broken down into classifications of liquidity and asset utilization, debt and interest coverage, profitability and market-based ratios.
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.
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.
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,
The company Google Inc started as the Online search firm, Now a days the company provides a surplus of 50 different internet services and products some of them are emails ,mobile phones and etc. In the year of 2012 the Google company make an attainment with Motorola Mobility which has make their position in the Market for sell hardware in the type of Cell phones. The company having a wide product collection and range put the company in the list of top four powerful companies in the technologically advanced market beside with the companies Apple , IBM and Microsoft. Regardless of the numerlous of products, the company main hub of success is still remains as they started as the orginally whi...
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.
Political, economic, and technological are three factors of the external environment that Google must identify with doing an external analysis. Political factor can profit Googles growth through different markets. Chinese’s and US government placed an obstacle for any growth that Google had in these markets. According to Google 2009, “They viewed Google as a monopoly and request authority to monitor its activities. The pressure of the government provides additional problems with copyright and privacy issues. As the technology expands, it offers more problems for Google. “New...
Balance sheets are very important for parties like suppliers, investors, competitors, customers, etc. to know the company’s position, company’s strength and company’s weaknesses. Balance sheets helps to ascertain the amount of capital employed in the business so that we can further calculate different types of ratios. Some important objectives of preparing balance sheets are: