Planning is very important to companies and firms, they need to analyze their various ratios and from that they are able to draw conclusions and make predictions for the long run. Financial planning is a process where accountants estimate the capital needed and they determine who their competition is. There are various ratios that are needed in order to determine how a company is doing financially. These include the following: profitability ratio, short term liquidity & efficiency ratio, working capital, long term solvency and shareholder ratios. This report will focus on the longterm solvency and shareholder ratios for Asos Ltd. Since there was a lack of data it was impossible to calculate the gearing ratio, interest cover, return of equity and the dividend payout ratio. Therefore this report will discus what the terms mean and why the ratios are missing.
PROFITABILITY RATIO’S
SHORT TERM LIQUIDITY & EFFICIENCY RATIOS
WORKING CAPITAL
LONG TERM SOLVENCY & SHAREHOLDER RATIOS
Gearing Ratio
Many companies need to borrow money in order to have an appropriate amount of funds to expand their company, because they need to invest in new apparatus and machinery. Sometimes the investment can be funded from profits that have been made or it can come from issued share, however it is most likely to be borrowed. The more interest they pay then the more money needs to be borrowed. However borrowing money is always a risk since the company has to pay the interest even if the investment is successful or not. If they are making losses they will still have to pay interest. The more capital the company borrows the bigger the risk is. When one looks at the different accounts they would want to analyze how big the risk is and in order to do this one must use the gearing ratio.
What does Gearing Ratio mean?
The gearing ratio is a term that is used to describe a financial ratio that compares the owner’s equity or capital that...
...000  75.000 
Cumulative Cash Balance  69.600  77.800  101.200 
Repayment  5.400  2.800  2600 
Cumulative Loan Balance  5.400  2.600  0 
Ending Cash Balance  $75.000  $75.000  $98.600 
Problem 25 / Page 89
ProfitabilityRatios  Johns Corp  Smith Corp 
Profit Margin  7.4%  5.25% 
Return On Assets  18.5%  12% 
Return on Equity  29%  34% 
Assets Utilization Ratios   
Receivable Turnover  15.6  14.29 
Average Collection Period  23 T  25 T 
Inventory Turnover  25  13.3 
Fixed Assets Turnover  3.57  4 
Total Assets Turnover  2.5  2.3 
LiquidityRatios   
Current Ratio  0.83  0.65 
Quick Ratio  1.0  1.5 
Debt Utilization Ratios   
Debt To Total Assets  36%  65% 
interest Earned  24  6 
Debt to Equity  0.56  1.86 
In analyzing the ProfitabilityRatios, we are able to note that john’s Corp shows higher profit margin than Smith by 2.10% which means good cost control, it measures of how many percent if a dollar earned, that the johns Corp get to keep as a profit. And its return on assets is higher by 6.5% and that indicates how many dollars of Johns earnings result from each dollar of assets the company controls. Return on Assets ratio gives an idea of how efficient management is at using its assets to...
...welltested ratios out there make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify of the desert hotel company's strengths and weaknesses, evaluate its financial position, and understand the risks you may be taking.
As with any other form of analysis, comparative ratio techniques are not definitive. Numerous off the balance sheet and income statement factors can play a role in the success or failure of a company. This discussion contains descriptions and examples of the eight major types of ratios used in financial analysis: Profitability, Liquidity, shorttermliquidity and LongTerm Analysis
Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial stability and management efficiency for the business. Although, ratios report generally show the professional way, of the desert lodge accommodation of beds and breakfast boutique hotel in the desert of Kuwait.
There are several considerations it must be aware of when comparing ratios from one financial period to another.
ShorttermLiquidityShorttermliquidity is the ability of the...
...want to make profits but at the same time they are concerned about liquidity and safety. In fact these three namely liquidity, profitability and safety are the main objectives of a monetary policy.
Banks have to earn profits because if they don’t, they would not work as all the shareholders would sell off the shares if proper dividends are not earned. Hence they have to earn profits for their shareholders and at the same time satisfy the withdrawal needs of its customers. The main problem here comes is sticking the balance between liquidity and profitability as both contradict each other. This is the tradeoff between liquidity and profitability.
Maximum safety or in simple language we can say liquidity can be attained only if the banks keep high amount of cash against the deposits they have held. But if they do this, this will not bring any profits for the banks. Thus, if the bank goes for maximum safety then they will have to sacrifice the profitability objective that is the dividends would be as per the requirements of the shareholders. Similarly if they go other way round that is they only keep on investing and trying to increase the profitability factor than they will have the problem if customer demands for cash. Hence it is very difficult for the banks to reconcile the twin objective of bringing the profitability...
...Leader: Prof. Richard West
Module Leader: Prof. Bijan Hesnib
Submitted By:
Riyank Mehta  140550891
Jay Sanghvi  140248921
Anirudh Thakor  140994501
Jigar Ajmera  140249021
1. Executive Summary
This report is a summary of the comparison of ratio analysis of two companies Morrisons Plc. and Sainsbury Plc. for the accounting period 20102011 and 20112012. It focuses basically on various ratios such asProfitabilityRatio, LiquidityRatio, Gearing Ratio, Efficiency Ratio and Investors Ratio.
This ratios will give us an overview of the companys financial performance of Morrison and Sainsbury and will even help us to compare both the companys performance for 2011 and 2012. This comparision is usually made by investors to choose companies for investing by looking into its financial structure and by comparing its profit margins, sales growth, operating margin, dividend paid and many other such ratio.

Contents 
Page Number 
1. Executive Summary  2 
2. Introduction
2.1 Morrisons Plc.
2.2 Sainsbury Plc. 
4
44 
3. Ratio Analysis3.1 Profitability Ratios3.2 Liquidity Ratios3.3 Efficiency Ratios3.4 Gearing Ratios3.5 Investors Ratios  559101314 
4. Conclusion &Recommendations  18 ...
...ProfitabilityRatiosProfitabilityRatios attempt to measure the firm's success in generating income. These ratios reflect the combined effects of the firm's asset and debt management.
Profit Margin
The Profit Margin indicates the dollars in income that the firm earns on each dollar of sales. This ratio is calculated by dividing Net Income by Sales.
Return on Assets (ROA) and Return on Equity (ROE)
The Return on Assets Ratio indicates the dollars in income earned by the firm on its assets and the Return on Equity Ratio indicates the dollars of income earned by the firm on its shareholders' equity. It is important to remember that these ratios are based on Accounting book values and not on market values. Thus, it is not appropriate to compare these ratios with market rates of return such as the interest rate on Treasury bonds or the return earned on an investment in a stock.
Shortterm Solvency or LiquidityRatiosShortterm Solvency Ratios attempt to measure the ability of a firm to meet its shortterm financial obligations. In other words, these ratios seek to determine the ability of a firm to avoid financial distress in the shortrun. The two most important...
...ProfitabilityRatiosProfitabilityratios measure two aspects of a corporation’s profits: (1) those elements of operations that contribute to profit and (2) the relationship of profit to total investment and investment by stockholders. The first group of profitabilityratios [gross profit (or gross margin) percentage, operating margin percentage, and net profit margin percentage] expresses income statement elements as percentages of net sales. The second group of profitabilityratios (return on assets and return on equity) divides measures of income by measures of investment.
• Gross Profit (or Gross Margin) Percentage
Gross profit percentage is measurement of the proportion of each sales dollar that is available to pay other expenses and provide profit for owners. The gross profit percentage indicates the effectiveness of pricing, marketing, purchasing, and production decisions. In evaluating the gross profit, operating margin, and net profit margin percentage, it is important to recognize that there is substantial variation in profit margins from industry to industry.
• Operating Margin Percentage
The operating margin percentage measures the profitability of a company’s operations in relation to its sales. All operating revenues and expenses are included in income from operations, but expenses, revenues, gains, and losses that are...
...2.0 FINANCIAL RATIOS
2 LiquidityRatiosLiquidityratios measure a business' capacity to pay its debts as they come due. It also measures the cooperative’s ability to meet shortterm obligations. Liquidity refers to the solvency of the firm’s overall financial position – the ease with which it can pay its bills. Because a common precursor to financial distress and bankruptcy is low or declining liquidity, these ratios can provide early signs of cash flow problems and impending business failure. The two basic measures of liquidity are the current ratio and the quick (acid test) ratio (Gitman, 2009).
1. Current ratios
The current ratio is current assets divided by current liabilities. The current ratio measures the firm’s ability to convene its shortterm obligations. However, this ratio does not consider the degree of liquidity of each component of current assets. In the other words, if current assets of a cooperative were mainly cash, they would be much more liquid than if comprised of mainly inventory (“Using Financial Ratio Analysis,”1995).
Basically, the higher the current ratio, the more liquid is considered to be. If the...
...ProfitabilityRatios
Return on Capital Employed (ROCE) or Return on Equity (ROE)
Numerator – the net profit or income, usually taken before tax.
Capital Employed or Shareholders Equity 
Designed to indicate the effective use of the shareholders capital in the business with respect ot the net profits that they have generated over the period of concern.
Net Profit/Income Percentage or Return on Sales
Helps to identify the impact of administrative, selling and distribution costs on profit, when compared with the gross profit percentage.
LiquidityRatios
Current Ratio (Working Capital Ratio)
Usually expressed in terms of ratio of, say, 2:1 or 2 to 1 where the current assets equal twice the liabilities. This shows the number of times that the shortterm assets can be quickly turned into cash, to meet any shortterm requirements.
Acid Test (Liquid Ratio)
Measures the immediate ability to pay shortterm creditors, as inventory is not always available for shortterm sale. A 1:1 is often a reasonable guide.
Inventory Turnover Ratio
Records how much inventory is tied up in relation to its usage by showing how often it is turned over in a trading period. It is a measure of how effectively inventory is...
498 Words 
2 Pages
Share this Document
{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/imagesstudy.netdnassl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stmstudy.netdnassl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":false,"isPremiumCountry":false,"userCountryCode":"US","logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","cookies":{"unlimitedBanner":"off"},"essay":{"essayId":36989686,"categoryName":"Periodicals","categoryParentId":"17","currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"12","totalPages":2}},"access":"premium","title":"Profitability Ratios: Short Term Liquidity","additionalIds":[3,9,52,19],"additional":["Business \u0026 Economy","Entertainment","Business \u0026 Economy\/Organizations","Natural Sciences"],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/ProfitabilityRatiosShortTermLiquidity1404873.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup\/","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffreetrial\u0026bypassPaymentPage=1","showModal":"getaccess","showModalUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.8","language":"en_US"},"analytics":{"googleId":"UA327183211"}}