A higher value of return on equity employed indicates the company is able to generate a higher profitability while lower value shows that the company is generating a lesser earning and lower profitability.
Therefore, from the bar chart we know that HupSeng is able to generate high profitability then other two companies with have highest value of return on capital employed, 28.03% compare to other two companies. For Hwa Tai, who have -2.86% on return on capital employed, it show that Hwa Tai was generating a loss in business and lowest profitability compare to other two companies.
For London Biscuits which have 7.30% in return on capital employed, it means that London biscuits able to generate earning but less than HupSeng and have higher profitability than Hwa Tai but lower than HupSeng. It was because London Biscuits return on capital employed value is between on HupSeng and Hwa Tai.
Gross Profit Margin
Definition
Gross Profit Margin is a financial metric that is used to evaluate a firm financial health by acknowledging the proportion of money left over from revenue after accounting for the cost of goods sold.(Deb Katula, 2013) It function as the main source for paying additional expenses and future savings.
Formula
Gross Profit Margin= (Gross Profit)/Revenue×100
NOTE: Gross Profit = Revenue – Cost of Goods Sold (COGS)
Company Calculation Interpretation
Hwa Tai = (66,446,623-49,501,691)/66,446,623 X 100
=16,944,932/66,446,6230 X 100
= 25.50% The gross profit margin of Hwa Tai is 25.50%. So, the company gained RM25.50 gross profit for every RM100 of sales revenue generated before operating expense was paid.
HupSeng = (247,818,145-159,924,152)/247,818,145 X 100
=87,893,993/247,818,1450 X 100
= 35.47% The gross profit margin o...
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...ds and creditor's funds.
Formula
=(long term loans+preference shares)/(ordinary shares capital+reserves+preference shares+long term loans )×100
Company Calculation Interpretation
Hwa Tai [1,108,652/(40,042,400+1,108,652)]×100
= 2.69% The calculation shows the gearing ratio of Hwa Tai Industries Berhad is 2.69%.
HupSeng [7,957,511/(60,000,000+7,957,511)]×100
= 11.71% It shows the gearing ratio of HupSeng Industries Berhad is only 11.71%.
London Biscuits [78,517,259/(277,207,041+78,517,259)]×100
= 22.07% The calculation shows the gearing ratio of London Biscuits Berhad is 22.07%
Compare & Comment
From the bar graph above, we can know that the gearing ratio of Hwa Tai Industries Berhad is only2.69%., it is the lowest compared to other two companies. It means the company’s funded by creditor’s fund is low and the risk of financial problem is low.
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
Equity ratio and debt ratio are both very important because it shows how much of the assets used for production is really owned by the owner of a company. According to calculations in the appendix, RBC has the highest equity ratio and the lowest debt ratio. This is considered favourable compared to Sun life and BMO’s equity and debt ratio. When it comes to return on total assets BMO has the highest return. Meaning it is earning more per assets than RBC and Sun
The debt ratio is calculated using short term and long term debt relative to the total assets of an organization. The higher this figure is, the riskier a financial investment the organization is. The industry average has a debt ratio of 55%, a more promising figure than Happy Hamburger had before its increases, 68%. The debt ratio would have been considered a weakness for Happy Hamburger, but with the increased figures taken into consideration, this figure is a strength for Happy Hamburger at 39%, a more favorable figure than the industry average and indicating the organization is a less risky
The Return on Capital Employed (ROCE) ratio is a profitability ratio that measures how well profits are being generated based on capital employed. RadioShack’s ROCE dropped down to -34% in 2013 in comparison to 10% in 2012. For every dollar of capital employed, RadioShack is losing $0.34. The dramatic dip stems from 2012’s positive earnings before interest and taxes (EBIT) of 155.1 million dollars to 2013’s EBIT of -344 million dollars. Capital employed is determined by subtracting current liabilities from total assets. In 2013, capital employed decreased by 79 million dollars. ROCE is used to view the long-term profitability of firms. A more in-depth trend analysis done over several years would need to be done to determine the
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
The return on total assets (ROA) is an overall measure of profitability which measures the total effectiveness of management in generating profits with its available assets. This ratio indicates the amount of net income generated by each dollar invested in assets. The higher the firm's return on total assets, the better. Harley Davidson's return on total assets was 14.04% for 2001, 14.27% for 2000. These percentages are high and show an upward trend, this shows strong performance in this area for the past two years.
...e overall performance of the company given that the higher the margin, the more likely that the company will retain a profit after taxes have been withdrawn. It is calculated by subtracting the cost of interest from the earnings before income taxes.
Low levels of gearing will also mean that there will be high levels of cash generated in the company, allowing the management to use the money and invest it back into the company.
Return on capital employed (ROCE) expresses a company’s profit and displayed as a percentage of the amount of capital invested in the company. ROCE interprets “capital employed” as the total amount of money invested in the company in the long term, regardless of whether that money has been supplied by shareholders or lenders. This amount will compared with the return achieved on that capital. The results were shown that Wm Morrison Supermarkets are higher than Tesco by 4.55 per cent.
The net profit margin refers to how many percentages the company keeps from its earnings. The earnings per share indicate how much profit a company can make for each outstanding share of common stock. The ROE measures the company’s profitability with the capital raised from the investors. For example, Whole Foods return on equity is 12.1%, which means the company is in good shape and is attractive to investors because the profits are higher than the cost of equity (Freeman,
A business’s gearing ratio determines the solvency of that business; this refers to the business’s ability to meet its long-term financial guarantees and commitments. Gearing is an important consideration for a business as a highly geared business that has higher proportions of debt to equity leads to a greater risk for the business. This is because debts affect stakeholders and possible investors due to high risks involved that may lead investments to be discouraged. However it also leads the business into having greater potential for profit. In reference to Hartley’s Homewares, the businesses gearing ratio being 2.817:1 OR 281.7% is relatively high compared to the industry average, which is 3:2 (or 1.5:1). From looking at Hartley Homewares
DuPont equation provides a broader picture of the return the company is earning on its equity. It tells where a company 's strength lies and where there is a room for improvement DuPont analysis examines the return on equity (ROE) analysing profit margin, total asset turnover, and financial leverage. DuPont analysis decomposing ROE into its components allows analyst to identify adverse impact on ROE and predict the future trends. Return on equity (ROE) measure the rate of return flowing to shareholder. The higher the ROE the, the better it is. It concludes that a company can earn a high return on equity if it earns a high net profit margin, it uses its assets effectively to generate more sales; and/or it has a high financial leverage.
Between the years 2011 and 2012, return of equity (net income divided by shareholder’s equity) decreased from 8.13% to -0.48%. Between 2011 and 2012, return of assets (net income divided by total assets) decreased from 2.5% down to 0.12%. Between the years 2012 and 2013, return of equity increased (-0.48% to 2.81%). Shareholders would have been happy with this slight increase. Between 2012 and 2013, return of assets increased from -0.12% to 0.68%. Between 2013 and 2014, return on assets decreases again from 0.68% to -0.24%. Over and over again, the return of investments seems to fluctuate from positive to negative around zero.
[6] Professional Jewler Magazine Archive, Lev Leviev's Angolan Connection, [internet] Accessed on: 13th November 2005, http://www.professionaljeweler.com/archives/articles/2002/feb02/0202dn1.html
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.