Acc561 Wk2 Dq1

Topics: Generally Accepted Accounting Principles, Financial ratios, Financial ratio Pages: 1 (417 words) Published: March 26, 2013
Analyzing the information provided in Week 1 Discussion Question 1, I chose to use the Coca-Cola Company. Their financial information can be found at the below link. Profitability ratios measure the success a company has through its operating activities for a selected period. Two examples of profitability ratios are Return on Assets (ROA) and Gross Profit Margin. Return on assets ratio measures the amount of profit made by a company per dollar of its assets. It is calculated as Net Income /Total Assets. The Coca-Cola Company recorded net income of $9,089 and total assets of $86,174. Using the formula above their return on asset is 10.5 percent. This means for every dollar of assets they are able to generate income of 10.5 percent in profits. The Gross profit margin ratio reveals how much a company earns; taking into consideration the costs to produce goods. Gross profit is calculated as Gross Profit/Revenue. Coca-Cola recorded gross profits of $28,964 and revenues of $48,017 yielding a gross profit margin of 60.3 percent. This is compared to the industry standard to measure how well Coca-Cola control costs. Solvency ratios are used to measure how well a company manages its debts. For instance, the total debt ratio is total assets minus total equity divided by total assets. Coca-Cola has a debt ratio of 60.5 percent. The debt ratio shows the percentage of Coca-Cola’s asset that is financed through debt. Approximately 61% of the company's assets are financed through debt. The Debt to equity ratio measures the stability of financing provided by stockholders compared to the financing provided by creditors. This is calculated as total liabilities/total equity. Coca-Cola’s debt to equity is 83 percent. A large amount of debt as a percentage of equity indicates that Coca-Cola is funding operations and growth through debt. Liquidity simply put, is the measure of...
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