Part 1 : Examine and analyze the financial ratios for eight pairs of unidentified companies and match the description of the company with the financial profile derived from the financial ratios. Beer Company D has higher current ratio and quick ratio which is higher 2.43x and 2.3x respectively. This was because Company D had higher cash and short term investment which was 55.6% while Company C only has 1.4%. It proves that Company D is financially conservative and it matches with the second described company. Beside that, Company D keep more stock which is 11.9% compare with Company C 4.3% because their company produces seasonal and year round beers with smaller production volume and their beers’ demand is not whole year long. Hence …show more content…
Company A has higher receivables (12.8%) than Company B, 8.1%. This is probably because Company A distributes their products to institutions like hospitals, clinics and etc. Institutions take longer time to pay, while Company B distributes their diversified health-products to end-consumers or to the mass market by cash settlement or short credit term. Inventory turnover for Company A (3.08x) is higher than Company B (0.93x), that means inventories are sold and replaced faster than Company B. Company A has higher turnover because those institutions, especially hospitals “consume” health products faster and more. Lastly its show Company A has deep pipeline of its ethical pharmaceuticals. On the other hand, Company A has net fixed assets of 19.6%, higher than Company B (14.9%), which probably because Company A has more equipments to support their robust research and development. Intangibles e.g. goodwill for Company B (46.1%) is higher compared to Company A (22.2%) because B focus more on their brand development. Company B (88.9%) has a higher gross profit margin most likely because the firm not only manufactures and mass markets a broad line of prescription pharmaceuticals, over-the-counter remedies, consumer health and beauty products but also manufactures medical diagnostics and devices. Company A is lower (76.1%) due to its limited product range (only manufactures drugs). In conclusion, Company A fits the first set
| The company has a few different suppliers but relies on each supplier to bring in the stock for them to sell, if they didn’t have more than one supplier then they wouldn’t have anything to sell if one stopped production or went on strike.
2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.
The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.
Secondary information is collected for this case. This case study limited only one techniques of financial analysis that is Ratio Analysis and also taken a single company. Thus the conclusion of the analysis carried out in a professional manner will be able to correctly describe the evaluation of the company and to substantiate the user’s decisions.
Once again both companies have seen a reduction in this ratio over the past two years, meaning that the company were less effective in ’generating sales from [it’s] assets’. (Leopold, A et al, 1999, 249).
Asset turnover depicts investment efficiency, because it shows how many sales dollars are generated for every dollar invested in the company’s assets. Lowe’s had relatively lower asset turnover ratios than Home Depot because their recent investment in PP&E.
A vertical and horizontal analysis of each company's balance sheet and income statement in this particular case will be enlightening. A vertical analysis will for instance shed some light on how revenue is being used. In this case, each component of the companies' financial statements will be converted into a percentage of a key component of either the balance sheet or the income statement. A special common size balance sheet and income statement will be utilized to ease comparison. The
1. Please conduct a financial ratio analysis using the data in Exhibit 2. How do the results reflect different strategies pursued by the 4 firms?
Therefore, due to these differences in approach of the management, the profitability margins are so different for these two companies.
Return on net assets = Net Income in Statement of Operations / Net Assets in the Balance Sheet
With this company the inventory management ratios further indicate that there may be an issue with inventory and inventory controls. The inventory turnover ratio is lower than the industry average and the days’ sales in inventory are high. A company wants to turn inventory quickly to reduce storage costs, and
How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?
In order to find out the exact firm by analysing the financial structure of typical firms, first we need to separate those firms which have zero inventory turnover (A, B, F and H) from those firms which have zero debt ratio which in our case are (E, H and J) and we use the information to narrow down the possibilities of each firm. In this case there are three groups of companies:
Evaluating management effectiveness, the asset utilization ratios assess daily operating performance. Indicating a quicker collection turnover on outstanding debt, Google has a higher receivables turnover than Apple. Although, Google takes longer to collect accounts receivable, or average collection period, than Apple. Similarly, analysis reveals Google has double the higher inventory turnover than Apple. Comparing the fixed asset turnover reveals that Google gains 2.64 dollars for each dollar in fixed assets, whereas Apple generates 7.98 dollars. The total asset turnover tells that Apple outperformed Google by generating 67 cents for every dollar of assets.
In this ratio he explains about the three types of business inventory like raw materials, work in progress and finished goods. Formula to find the inventory turnover ratio and average age of inventory is: - inventory turnover = costs of goods sold/average inventory, Average age of inventory = 360 days/inventory turnover ratio.