There are three ways of working out how profitable a business really is: * Gross profit percentage – This calculation shows gross profit as a percentage of the turnover. Gross profit percentage is also sometimes called gross profit margin. The calculation shows how well the business is managing its purchases of stock. A high gross profit percentage shows the business is doing well as it is controlling the cost of its purchases. * Net profit percentage – This calculation takes the idea of profitability one stage further by actually considering the profit as a percentage of turnover after all the other expenses have been taken out.
TARGET CORPORATION FINANCIAL ANALYSIS AND INTERPRETATION The ability of a business to meet its short-term cash requirements is called liquidity. It is affected by the timing of a company’s cash inflows and outflows along with prospects for future performance. Efficiency refers to how productive a company is in using its assets, and it is usually measured relative to how much revenue is generated from a particular level of assets. They are both important and complementary. Two measures for evaluating a business's short-term liquidity are working capital and the current ratio.
Berry’s Bug Blasters Ratio Analysis Memo ACC/291 Principals of Accounting II MEMO To: Berry’s Bug Blasters CEO From: Accounting Dept (Team B) Date: September 16, 2013 Re: Ratio Analysis Accounting Team B conducted a ratio analysis of Berry’s Bug Blasters to express the relationships among selected items of financial statement data. Ratios express mathematical relationships between one and another is expressed in terms of percentage, rate, or simple proportion. We used ratios to evaluate liquidity, profitability, and solvency. Listed below are the findings from the ratio calculations. The analyses reveal many things about the company’s financial position and performance, and also which users are interested in each type of ratios.
Profitability ratios provide an indication as to their success in achieving this aim. They express the profits made in relation to other key figures in the financial statements. Efficiency Also referred to as activity ratios these measure the efficiency with which certain resources have been used within the business. Liquidity/Solvency These ratios measure the ability of the business to meet its current and future obligations. Investment Ratios These are concerned with assessing the returns and performance of shares in the business.
The Weighted Average Cost of Capital is the average of the costs of a company's sources of financing-debt and equity, each of which is weighted by its respective use in the given situation. By taking a weighted average, it shows how much interest the company has to pay for every marginal dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. Also, WACC is the appropriate discount rate to use in stock valuation. No, I don’t agree with Cohen’s WACC calculation.
Analyze the performance of a business using suitable ratios for 2006 and 2007 Ratio analyses; Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. Ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size.
The income statement is important because it will show whether the company’s revenue exceeded expenses for a specific period resulting in net income or the amount the company may have lost because the expenses exceeded the revenue. The retained earnings statement is equally important because it will indicate the exact reason why the company’s retained earnings increased or decreased over the reporting period. The balance sheet is important because it is the overview of the company’s financial condition at the time of the reporting period and the statement of cash flow’s is important because “Reporting the sources, uses, and change in cash is useful because investors,creditors, and others want to know what is happening to a company’s most liquid resource.” (Weygandt,
The last item that is listed on Ford’s cash flow statement is financing activities that include things or transactions that will affect liabilities that are long-term and the equity in stockholders accounts that include the pay out of dividends to these stockholders. This type of activity show the improvement in the capital assets and repayment of interest and principal balances between the investors in Ford Motor and the company itself. All
Financial Ratio Analysis of Dr. Pepper Snapple Group Liquidity ratios for a company help whomever is analyzing the data determine the company’s liquidity. When a company has good liquidity they are able to pay off their short term debt without having to take out any additional financing. We will look at Dr. Pepper Snapple Group’s current ratio for 2009 and 2010. The current ratio is calculated by taking the company’s current assets and dividing it by the current liabilities. It shows how many times the current assets can cover the current liabilities.