Memo to CEO Liquidity Ratios Current Ratio To compute the current ratio, divide current assets by current liabilities (Kimmel, Weygandt, & Kieso, 2010). The calculation for Huffman Trucking’s current ratio in 2011 is 147,800 ÷ 90,283 = 1.64. Acid-Test Ratio The formula for calculating acid-test ratio is (Cash + Accounts Receivable + Short-term Investments) ÷ Current Liabilities. The computation for Huffman Trucking’s 2011 Acid Test Ratio is as follows: (89,664 + 51,869) ÷ 90,283 = 1.57. Receivables Turnover The Accounts Receivable Turnover Ratio assess liquidity of receivables by measuring the number of times an average company collects Accounts Receivable during a period (Kimmel et. al., 2010). To determine this figure, divide net …show more content…
To calculate this ratio, add the cost of production materials and supplies purchased for a period to the total starting value of the inventory. Huffman Trucking did not provide information pertaining to inventory, which means that inadequate information exists to determine this …show more content…
Calculating this figure allows businesses to determine profit without having to make allowances for manufacturing costs (Kimmel et. al, 2010). To calculate the profit margin divide Net Income by Net Sales. The profit margin for Huffman Trucking is 59,167 ÷ 1,109,295 = 0.053 which equals a profit margin of 5.3% for 2011. Return on Assets The Return on Assets is a ratio, which demonstrates how much profit a company keeps from each dollar of sales earned. This figure demonstrates how a company uses their money. To calculate the Return on Assets Ratio divide Net Income by Total Assets. The Return on Assets Ratio for Huffman Trucking for 2011 is 59,167 ÷ 267,265 = 0.22 or 22%. Return on Common Stockholder’ Equity The Return on Common Stockholders’ Equity Ratio is one of the most important investor considerations prior to investment. This ratio discloses how much profit a company makes with capital invested by stockholders. To determine this ratio, divide Net Income by Equity. The Return on Common Stockholders’ Equity for Huffman Trucking in 2011 was 59,167 ÷ 105,617 =
This requirement makes it important to look through a majority of the return ratios, which include return on sales, return on assets, and return on equity. Additionally, investors are also interested in the ratios related to the company’s earnings, such as earnings per share (EPS) and PE ratio. Looking at return on sales, we can see that Wendy’s has a 7.27% return on sales and Bob Evans has a 1.23%, which demonstrates Wendy’s has a higher profit margin. Moreover, Wendys’ return on assets is 2.85% and Bob Evans is 1.58%. Also, Wendy’s and Bob Evan 's have return on equity ratios of 6.66% and 4.30%, respectively. All of these return ratios show that Wendy’s has a better handle on turning working capital into revenue. On the other hand, although Wendy’s return ratios are higher than Bob Evans, Bob Evans has a better performance on earnings per share and PE ratio. This is due to Bob Evans having less common stock share outstanding, which makes their earnings per share and PE ratio higher than Wendy’s. Due to the EPS being higher for Bob Evans, we would recommend that investors look towards Bob
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are increasing and more inventory is left over each year causing the return on sales to decrease. For 1995, it was 1.7% which is less than the average of 2.44% but is a lot higher than the bottom 25% of companies as seen in exhibit 3, which actually have negative sales return of 0.7%. Return on equity is increasing each year and at a higher rate than industry average. In 1995, it was 20.7%, greater than the average of 18.25% and close to the highest companies in exhibit 3, of 22.1% showing that the return in investment in the company is increasing, which is good for the owner.
It is a profitability ratio and it calculates the ability of the company to produce profit from the investments of its shareholders. It shows the profit generated by each dollar of shareholder’s equity. It is important ratio because investors always see that how efficiently and effectively the management of the company is using their wealth to generate profit.
ROE = net profit margin X total asset turnover X total assets to equity ratio = -39.74% for FY 2016.
Return on equity (ROE) measures profitability from the stockholders perspective. The ROE is a calculation of the return earned on the common stockholders' investment in the firm. Generally, the higher this return, the better off the stockholders are. Harley Davidson's return on equity was 24.92% for 2001, 24.74% for 2000. They have sustained consistent, positive, returns for their shareholders for the past two years.
Return on Equity (ROE) is defined as net profit/Total equity. This ratio shows how much company earned on the money of shareholders. In 2012, ROE is deeply negative at 44.4% but in 2013, it got significantly improved and touched 6.5%. However, it can’t be treated as a healthy figure but in comparison to profit margin or operating ratio, it is a respectable one.
The increasing trend in the quick ratio from 4.7 to 7.7 during 2013 – 2014 shows that its quick assets are more as compared to its current liabilities. This shows that the firm is easily paying off its current liabilities. Similarly, the increasing trend in the current ratio reflects that the firm is easily paying off its current debts by using profits generated from its current operations. Likewise, the increasing trend in the asset turnover ratio means that the firm is using its assets productively.
The analysis of these ratios shows how Ford stands as a company for the past five years. Return on equity (ROE) reveals how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet. For long-term investing with great rewards, companies that have high return on equity ratios can provide the biggest payoffs. This ratio also tells investors how effectively their capital is being reinvested, so it is a good gauge of management's money handling skills. Ford is showing a considerable turn around in this area this past year, which could easily be due to changes in management. They are also reasonably following the industry in this area.
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
This is calculated by dividing the net income by the average total stockholder’s equity. This is used to compare the amount invested by the rate of income earned (Warren, Reeve and Duchac, 2016, p. 811). Hasbro for 2012 had a rate of 23%. For 2013, they had a rate of 17.8%. According to my figures, rate earned on stockholder’s equity was better for Hasbro in 2012 than it was 2013. Mattel had a rate of 27.4% in 2012 and a rate of 28.6% for 2013. For both years, Hasbro had a lower rate than Mattel. Meaning that Hasbro was more profitable for the stockholder’s in 2012 than it was in 2013. According to the 10-K for Hasbro, net earnings for the company were affected by restructuring charges and product development expenses (Edgar Online,
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.
...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)
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.
The current ratio and quick ratios for the year 2003 are at 2.5 and 1.3, which are both higher than the industry average. The company has enough to cover short term bills and expenses. Both the current and quick ratios are showing an upward trend compared to 2001 and 2002. The current assets decreased by $ 20,264 to $ 1,531,181 and the current liabilities also decreased considerably by $255,402 to $616,000, a 29.3% decline, thus making the current ratio jump to a 2.5. The biggest decline was seen is accounts payable which decreased by $170,500 to $230,000, a decline of 42.6 %.