TABLE OF CONTENTS INTRODUCTION 3 MANAGERIAL FINANCE: 3 FINANCIAL STATEMENTS ANALYSIS: 3 RATIO ANALYSIS: 3 FAUJI CEMENT... BALANCE SHEET AND PROFIT AND LOSS ACCOUNT 4 RATIO ANALYSIS: 9 INTRODUCTION MANAGERIAL FINANCE: • Managerial finance is concerned with the duties of the financial manager in the business firm. • The financial manager actively manages the financial affairs of any type of business, whether private or public, large or small, profit-seeking or not-for-profit...
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RAOUL MUYENZI Financial Decision Making for Managers Spring 2011-2012 Ratio and... Financial Statement Analysis Benefits and Limitations. Executive Summary This paper analyzes tools used in financial analysis such as ratios. Financial ratio analysis is a judicious way for different stakeholders to use for different goals. This paper demonstrates that financial ratio analysis is an...
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major categories of ratios, and what questions do they answer? * Liquidity: Can we make required payments as they fall due? * Asset... management: Do we have the right amount of assets for the level of sales? * Debt management: Do we have the right mix of debt and equity? * Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in NPM, ROE, and ROA? * Market value: Do investors like what they see as reflected in P/E and M/B ratios? 2. What is...
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FINANCIAL STATEMENTS Accrual-based approach – revenues are recorded at the point of sale and costs when they are incurred, not necessarily... when a firm receives or pays out cash Cash flow approach – used by financial professionals to focus attention on current and prospective inflows and outflows of cash 1. Balance sheet a. Assets Cash and Cash Equivalents Marketable securities Accounts receivable Inventories Net property, plant and equipment Intangible assets b. Liabilities Accounts...
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important financial ratios to give a pitcure of its financial position in the market comparing by comaparing it to... its industry average. From Annual report of year 2011 of ITV Plc . Financial Performance Analysis: This section aims to reflect the financial performance of the ITV Plc by analysing a range of financial ratios from the last two years. A comprehensive evaluation is provided of the significant ratios and later it is compared with its peers and sector ratios. Liquidity Ratios Basically...
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QUESTION 1 i. Current Ratio = Current Assets/Current Liability = $ 14,651,000/$ 19,639,000 = 0.750 ii. Quick Ratio... = (Current Assets – Inventory) / Current Liability = ($ 14,651,000 – $ 6,136,000) / $ 19,539,000 = 0.436 iii. Total Assets Turnover = Sales/Total Assets = $ 167,310,000/$ 108,615,000 = 1.540 iv. Inventory Turnover = COGS/Inventory = $ 117,910,000/$ 6,136,000 = 19.216 v. Receivable Turnover = Sales/Account Receivables = $ 167,310,000/$ 5,473...
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Introduction Financial ratio analysis is important to a business’s success. A financial ratio... analysis is an indicator of a company’s financial performance. It helps a business compare company financials with previous periods and also allows a business to contrast its financials to similar companies. A financial ratio can provide a clear image of a company's state and identify trends that are emerging. Use of ratios in analyzing financial statements Ratio analysis is a form of financial analysis...
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Session 15: Limitation of Ratio Analysis Learning Objective Explain to the participants on the limitation of... ratio analysis. Important Termss Creative accounting. Accounting Policies. Limitations of Ratios Accounting Information Different Accounting Policies The choices of accounting policies may distort inter company comparisons. Example IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost. The business may opt not to revalue...
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Interpreting Financial Results FIN/571 July 22, 2013 Interpreting Financial Results Liquidity: Current... Ratio Parrino, Kidwell, & Bates (2012) detail the current ratio as current assets divided by liabilities. The current ratio identifies a firm’s potential to pay short-term liabilities; higher liquidity is a good sign for potential creditors (Parrino et al., 2012). At the same time, however, the current ratio should not greatly exceed benchmarks of other competitors (Parrino et al., 2012)...
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Manufacturing’s Financial Ratios Riordan Manufacturing, Inc. (Riordan) is a publically held corporation established in... 1992, specializing in the manufacturing of plastic injection molding with facilities in California, Michigan, Georgia, and China. In 2000, the company expanded the manufacturing operations to China. Financial reports (Appendix A and B) for the fiscal years 2004 and 2005 depict the financial position of the company. Ratios calculated from Riordan’s financial statements provide...
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GROUP 1 REPORT FINANCIAL RATIOS Financial ratios are useful indicators of a firm’s performance and... financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. SOURCES OF DATA FOR FINANCIAL RATIOS Balance Sheet Income Statement Statement of Cash Flows Statement of Retained...
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Financial Ratio Analysis Paper Dehlia Lopez FIN/575 March 25, 2010 University of Phoenix Financial... Ratio Analysis Ford Motor Company is one of the automotive industries largest and most successful auto makers with more than 164,000 employees and seventy manufacturing plants world wide, (Ford Motor Company, 2013). The firm is led by President & CEO, Alan Mulally who drives with a ”One Team, One Plan, One Goal, One Ford business strategy for achieving success”, (Ford Motor Company...
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Professor: Date of submission: Introduction Ratio analysis is a strategy used to aid in assessing the... financial position of an organization. In healthcare finance, there are a lot of financial ratios, which have multiple descriptions. This report focuses on roles and analysis of financial ratios by category. In addition, it describes the comparison of financial ratios and national norms in Baltimore hospital. Ratios used in financial conditions are primarily driven by comparative data from...
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Important Financial Ratios in Investment Analysis Introduction Financial ratios are derived... ratio numbers from the financial statements of a company. Depending on the task, financial ratios can serve to various purposes in accounting, legal, M&A uses, etc. For investors, financial ratios are very powerful in two ways: indentifying the company’s unique competitiveness and evaluating its stock price level. The first part helps investor find a truly valuable company and the second part helps investor...
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A Financial Ratio Quarterly Trend Analysis of Honda Motor Co Ltd Stock Symbol: HMC Listed on the New York Stock... Exchange Prepared for: Deanne Butchey Department of Finance and Real Estate Florida International University Course: FIN 4606 By: xxxxxxxxxx Recommendations for Investors and Lenders Would you place a personal deposit of one million dollars or more in the publicly traded stock of this company? Honda is considered to be one of the best auto makers in the world;...
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The company that I have selected for Financial Ratio analysis is GOOGLE. The Ratios that I am going to analyze are... grouped under four main headings: 1) Profitability Ratio 2) Liquidity Ratio 3) Debt Ratio 4) Market Ratio 1. Profitability Ratio - Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. a. ROE - Return On Equity - Measures the rate of return on the ownership interest (shareholders' equity) of the common stock...
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What are the major limitations of Financial Accounting? Explain with the help of Examples. What are the alternatives to overcome... these limitations? Financial accounting can be defined as reporting of the financial position and performance of a firm through financial statements issued to the external users on a periodic basis. It is a field of finance that treats money as a means of measuring economic performance instead of treating it as a factor of production. It encompasses the entire system...
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The financial statements of proctor & Gamble can be found in the annual report. But what these numbers really mean can be found by the use of... ratios. In order to give you a more in depth analysis of Proctor & Gamble’s financial position we used several ratios. Activity ratios. These ratios measure whether a company is able to convert account within their balance sheet into cash. Showing us how fast a company can generate into cash and thus sales and ultimately more revenue. We used four ratios...
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As the result of the ratio analysis. There are 5 limitations of ratio analysis as well. The first... limitation of the ratio analysis is Comparing the ratios between two organizations/firms is a smooth path to do it. This is because, different organization/firms might have face unequal figures of earnings, losses. In addition, fact is the two difference organizations/firms might have different economic environment or production technologies even though they produce the same range of the product. For...
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FINANCIAL RATIO ANALYSIS REPORT The fiscal year 2004 was a relatively soft year for Barnes & Noble, Incorporated (B&N).... Blockbuster nonfiction books that came out during the year may not have come from the company, but business remained strong. This is due to the million of books already in the market, including phenomenal fiction hits "The Da Vinci Code," "The Five People You Meet in Heaven," and "The Rule of Four," and thousands of new releases during the year. This claim was supported by the...
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BSA/500 Calculate Financial Ratios Riordan Manufacturing’s Calculated Financial Ratio Current... Ratio The current ratio is the measure of the degree to which current assets cover current liabilities. A ratio of more than one suggests that it can pay most of its debts at that point in time. The ability to effectively turn products into cash is a good sign of a company's financial state. Current assets $14,589,092.09 * $14,643,456.43 * Current liabilities $6,974,094 $6,029,696 Current...
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NAME ACC230 Checkpoint # 2 Interpreting Financial Ratios Date... From what I have read and gathered; over the past (3) three years, Luna Lighting financials does have the possibility to expand within the next few years. The companies average collection period on money has decreased in the last three years and is better than industry average. The inventory turnover rate has maintained at steady level and...
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marks] Ratio 2014 Calculations Results 2013 Calculations Results 1. Return on Equity (2425 / 78018)x100 3.10% 3752/50319 7.46% 2.... Alternative Return on Assets (6985 / 216899)x100 3.22% (9150 / 198522)x100 4.61% 3. Alternative Profit Margin (6985 / 43014)x100 16.24% (9150 / 59860)x100 15.28% 4. Gross Margin (43014 – 24656) / 43014 42.68% (59860 – 38577) / 59860 35.55 5. Price-Earnings Ratio $0.95 / $0.084 11.31 times $0.98 / $0.068 14.41 times 6. Dividend Payout Ratio ($0...
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These tools are better known as ratio analysis. Ratios are among the more widely used tools of financial analysis... because they provide clues to and symptoms of underlying c... Words | Pages: 712 | 3 Save to My Folder More Papers Here Financial Ratio Analysis Report of Ford Motor Company ...s, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a...
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FINANCIAL RATIOS Financial ratios are indicators of a company’s performance as discernable from... the company’s Balance Sheet and income Statement. We will discuss some of the simple ratios of a company and talk about their significance. Liquidity Ratios: Show the company’s ability to pay of its current liabilities from its current assets. 1. Current Ratio Current assets should be significantly higher than current liabilities so that the current ratio is higher than 2:1. 2. Quick Ratio...
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The companies’ financial ratios can be compared with the ratios of other equivalent companies between business... sectors at one point of time. These comparisons provide explanations on the relative financial status and performance of the company compared to the relative performance of its competitors. Comparisons are usually made with other companies in the same business sector and the benchmark is assumed to be the suitable value for a company. The assumption here is for the companies in the same...
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liabilities demonstrate sustained increases in operating assets and decreases in operating liabilities. Stock repurchase has been more than doubled since... 2004. This could possibly be because of undervaluation issues or an effort to boost Microsoft's P/E ratio. The large net decrease in cash in 2005 can be entirely attributed to the abnormal jump in common stock cash dividends that year. In '05, Microsoft paid 1400% more in dividends than the yearly average. There is no other significant decrease in any...
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In finance Ratio analysis is carried out to judge the liquidity of the organization. It helps the analysts to find if a company is capable... enough to pay its liabilities. Moreover it also helps to show the operating efficiency and internal return of an organization. Keep in mind that the ratio is good or bad only if it is compared to the industry in which the organization is operating in. Some of the important ratios are: * Current Ratio * Asset Test Ratio * Return on Asset *...
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The Industry Averages and Financial Ratios Cassandra Brown, Diana Smiley, Patricia Ramirez FIN/370 - FINANCE FOR BUSINESS... 11/23/14 Michael Rodriguez The Industry Averages and Financial Ratios In today’s market business really look at what the others in their competitive market are doing to compare how they are doing as a business or corporation. They do this by evaluating the industry averages and the financial ratios. When corporations and financial advisors look at the industry...
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P7) To show the financial state of Petland, use the enclosed P&L account and Balance sheet to calculate accounting ratios for... the last 2 years. In each case show the formula and the figures used as well as your final answer. Write a few sentences to illustrate your calculation for example say whether the ratio is improving or not. Financial ratios Types of ratio PROFITABILITY RATIOS measure the relationship between gross/net profit and sales, assets and capital employed. By having a higher...
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Financial Ratios and Health Care Organizations Monique Thomas MHA 612 Financial and Managerial Accounting... Instructor Stacy Hiles September 10, 2012 Financial Ratios and Healthcare Organizations Health systems routinely compare their financial results to those of a peer group of healthy competitors. Although managers of most organizations strive to achieve the outcomes of comparable healthy competitors, it is equally important to examine those of unhealthy competitors. By doing so, managers...
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Ben & Jerry’s Financial Performance Year 1993 Year 1994 Change Leverage Ratio: Long-term debt ratio = Debt /... (Long-term debt + Equity) $18,002,076/($18,002,076+ $74,262,415) = 0.195113806 $32,418,565/($32,418,565+ $72,502,019) = 0.308981934 Increased Long-term debt equity ratio: Long-term debt/ Equity $18,002,076/$74,262,415= 0.242411669 $32,418,565/$72,502,019= 0.447140168 Increased Total Debt Ratio: Total Liabilities/ Total Asset ($13,082,094+$18,002,076+ $1,014,000)/$106,360,585 =0.301786324...
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The financial ratios are: Liquidity Ratio- The firms ability to satisfy the short term obligations. (Gitman, 2007)... Activity ratio- That measure the speed with which various accounts are converted into sales or cash, inflows or outflows. (Gitman, 2007) Debt ratio- That measures the proportion of total assets financed by the firms creditors. (Gitman, 2007) Profitability ratio- measures enable the analyst to evaluate the firms profits with respect to a given level of sales a certain level of assets...
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Uses of financial ratios One of the most widely used forms of financial analysis is the use of... ratios. They can provide data that is useful for investment decisions. They can also help internal management of an organization gain an awareness of their company's strengths and weaknesses. And, if we can find weaknesses, we can move to correct them before severe harm is done. While our group was looking at Nike's financial statements we were asked to look at liquidity ratios. The first ratio we examined...
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FINANCIAL RATIOS Gross Profit to Sales (Gross Profit Ratio): profitability ratio that shows the... relationship between gross profit and total net sales revenue. Gross margin/Net sales The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable...
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FINANCIAL RATIO ANALYSIS OF B.H.E.L Project submitted on completion of Summer Internship 7/11/2009 BHARAT HEAVY ELECTRICALS... LIMITED, BHOPAL Bhanupriya Vishwakarma MBA (Financial Adminnistration) Institute of Management Studies, DAVV, Indore TABLE OF CONTENTS Certificate Acknowledgements Declaration BHEL- at a glance -Introduction -Product Profile Ratio Analysis - What is Ratio analysis? - Role of Ratio analysis - Limitations of Ratio analysis Financial Statements and Ratio Analysis -Financial...
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Ratio Analysis Ratio analysis is one of the techniques of financial analysis where ratios are... used as a yardstick for evaluating the financial condition and performance of a firm. Analysis and interpretation of various accounting ratios gives skilled and experienced analyst a better understanding of the financial condition and performance of the firm than what he could have obtained only through a perusal of financial statements. Types of ratio’s 1. Profitability ratio 2. Leverage ratio...
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return on asset ratios for Landry's, the firm invested less money in 2003 in its asset base than it invested in 2002. Current... Ratio (Current Ratio = Current Assets / Current Liabilities) Liquidity ratios, like the current ratio, provide information about a firm's ability to meet its short time financial obligations. Short-term creditors seek a high current ratio from prospective clients since it reduces their risk. For investors in a company, such as shareholders, a lower ratio is sought, so...
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Financial Reporting Problem: The Procter & Gamble Company “On my honor, as a... student, I have neither given nor received unauthorized aid on this academic work.” _____________ _____________ _____________ _____________ Financial Reporting Financial Reporting Problem Fall 2011 [pic] In order to evaluate your understanding of the use of accounting information, you are asked to analyze the 2007...
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Liquidity ratios are the measure of how company pays its short term obligations and to meet the needs of the cash. The simplest... ratio is the current ratio. This ratio expresses the relationship between current assets and current liabilities. The comparison of the ratio shows that for both 2009 and 2010, industry average is better than the brands Inc. There is also a decrease in the current ratio for both the industries. The decrease of value from 1.8 to 1.75 is not favorable for the company...
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Ratio analysis provides an indication of a company's liquidity, gearing and solvency. But ratios do not provide answers; they are... merely a guide for management and others to the areas of a company's weaknesses and strengths (Palat 1999). However, ratio analysis is difficult and there are many limitations. This section will identify and discuss the inadequacies of accounting ratios as tools of financial analysis. ACCOUNTING POLICIES. It is difficult to use ratios to compare companies, because they...
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FINANCIAL RATIOS LIQUIDITY RATIOS Current Ratio: = current assets / current liabilities... ▪ The higher the ratio, the greater the "cushion" between current obligations and a firm's ability to meet them. ▪ Use: An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities...
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Financial Analysis Gauge of company performance/strength * Investment analysts are primarily interested in financial... statements as a predictor of future performance * Lenders will primarily focus on the financial strength (default risk) Financial Ratios Margin Ratios Gross profit margin = (Revenue – COGS) / Revenue Net profit margin = Net profit after taxation / Revenue Should minority interest be added back to profit? Net operating margin = Net profit before interest...
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LIMITATIONS OF RATIO ANALYSIS The debt-equity ratio gives an indication of an enterprise’s ability to sustain... losses without jeopardizing the interests of creditors. This ratio is based only on information provided in the balance sheet. Although stockholders’ equity serves as a buffer to protect the creditors’ interests, it should be kept in mind that the earning prospects of the enterprise are also relevant in judging a firm’s ability to survive the long run. Although the use of ratios can prove...
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of Financial Ratios Liquidity Ratio Quick Ratio Interpretation of Quick Ratio... Efficiency Ratio Asset Turnover Ratio Interpretation of Asset Turnover Ratio Profitability Ratio * Net Profit margin * Return on net worth EPS(Earning Per Share) Interpretation of EPS Price-to-Earnings ratio Capital Structure Ratio Asset-to-Equity Ratio Interpretation of Asset-to-Equity Ratio Debt-to-Equity Ratio Interpretation of Debt-to-Equity Ratio Interpretation of Interest Coverage Ratio Cash...
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Toyota Motor Corporation. The Group's principal activities are to manufacture and sell automobiles and provide financial services. The Group... operates through three segments: Automotive, Financial Services and Other. Automotive segment designs, manufactures, assembles and sells passenger cars, recreational and sport-utility vehicles, minivans and trucks and related parts and accessories. Financial services segment provides financing to dealers and their customers for the purchase or lease of Toyota vehicles...
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examines financial ratio analysis by defining, the three groups of stakeholders that use financial... ratios, the five different kinds of ratios used and their applications, the analytical tools used in analysis, and finally financial ratio analysis limitations and benefits. The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures. While financial ratio analysis...
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A well formulated financial ratio analysis report helps investors to quantify a company’s financial strengths and... weaknesses and potential risks and opportunities and identify the company’s financial position. Using financial ratio analysis as a tool in conjunction with other business evaluation processes, and other company factors, is beneficial for the investors (Brealey, Meyers & Marcus, 2009). The following report will provide the investor with a clear picture of the company’s current status...
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UVA-C-2332 Rev. Oct. 17, 2012 RATIOS TELL A STORY—2011 Financial results and conditions vary among companies for a number... of reasons. One reason for the variation can be traced to the characteristics of the industries in which companies operate. For example, some industries require large investments in property, plant, and equipment (PP&E), while others require very little. In some industries, the competitive productpricing structure permits companies to earn significant profits per sales...
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Tootsie Roll Net Profit Margin: Earnings Before Tax (EBT) – Taxes/Net Product Sales OR Net income/Sales Net Profit Margin is a ratio of... profitability that measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. 43938/528369 = 8.32% This is above industry average of 7.23%. Tootsie Roll’s profit margin is 8.32%, meaning the company has a...
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NIKE, INC.: Executive Summary Financial Statement Ratios According to Nike’s SIC number (3021), the company is classified in... the “rubber and plastic footwear” industry. Relying upon this information Mergent Online identified the following American companies as competitors to Nike: • Columbia Sportswear Company Annual Revenue $ 1,483,524,000 • Deckers Outdoor Corporation Annual Revenue $ 1,000,989,000 • Crocs, Inc. Annual Revenue $ 789,695,000 • Bakers Footwear Group Annual...
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Financial Ratios Profitability ratios: measure the capacity to preserve the income equilibrium in the future... Financial strength ratios: measure the reliance of the firm on long-term risk capital Liquidity ratios: measure (short/long-term) solvency, i.e. the capacity for the company to pay bills as they arrive. Profitability Notes: Should be compared with a relevant time period Profitability should be assessed either: 1. Cross-sectional. E.g. compared to competitors/its market. 2. Time-series...
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MEANING OF ACCOUNTING: Accounting is the process of recording, classifying, summarizing, analyzing and interpreting the financial... transactions of the business for the benefit of management and those parties who are interested in business such as shareholders, creditors, bankers, customers, employees and government. Thus, it is concerned with financial reporting and decision making aspects of the business. The American Institute of Certified Public Accountants Committee on Terminology proposed...
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Contents page Introduction……………………page1 Literature review………………page 2 Uses of ratios…………………...Page 2 Types of... financial ratios………Page 3 ➢ Profitability ratios……….Page 3 ➢ Efficiency Ratios………....Page 4 ➢ Liquidity Ratios………….Page 5 ➢ Investment Ratios………..Page 6 Limitations of ratios…………..Page 8 Conclusion……………………..Page 8 Introduction. The primary purpose of accounting is to convey information about the business to management, investors, shareholders, government...
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ACCOUNTANTS OF PAKISTAN REPORT ON RATIO ANALYSIS OF M/S RANI LIMITED PREPARED FOR: Board of Directors PREPARED BY: Management... Accountant TABLE OF CONTENTS Particulars Executive Summary Introduction Page No. 3-4 5 Financial Position and Ratio Analysis 6 - 10 Suggestions & Conclusion 11 - 12 Appendices Horizontal & Vertical Analysis of Income Statement Comparative Ratios & averages Trend of Ratios & Percentages Graphical Representation ...
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The Effects of IFRS on Financial Ratios: Early Evidence in Canada By: ichel Blanchette, François-Éric Racicot M... and Jean-Yves Girard Sponsor: ock Lefebvre, MBA, CFE, FCIS, FCGA R Research and Standards, CGA-Canada Elena Simonova, MA (Economics), MPA Research and Standards, CGA-Canada About the Authors Michel Blanchette, FCMA, CA is a professor of Accounting with Université du Québec en Outaouais. François-Éric Racicot is a Professor of Business with Université...
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Profitability Ratios 4 Liquidity Ratios 5 Gearing Ratios 5 Investment Ratios 6 Performance... Factors 6 Kingfisher PLC 7 Home Retail Group 7 Appendix 8 Profitability Ratios 8 Liquidity Ratios 9 Gearing Ratios 9 Investment Ratios 10 Bibliography 11 Introduction The aims and objectives of this report are to compare the two companies, Kingfisher Plc. and Home Retail Group Plc., using their annual report published for the year 2011. With the help of the financial statements, it...
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in manufacturing facilities located throughout the United States, Canada, Mexico and Europe. The company's financial ratios for... 2004, 2005, and 2006 were analyzed and indicates that the company is not without problems. The current ratio for the company has been on a steady decline over the last three years. From the standpoint of a creditor, the reduction of the company's current ratio is not good as the company's short term liabilities is outgrowing its current assets. However, when you look...
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Financial Accounting and Reporting – Ratio Analysis The following five-year summary relates to VKM Ltd, and is based on... financial statements prepared under the historical cost convention. Financial Ratios 2006 2005 2004 2003 2002 Profitability Margin Trading Profit Revenue % 7.8 7.5 7.0 7.2 7.3 Return on Assets Trading Profit Net Operating Assets % 16.3 17.6 16.2 18.2 18.3 Interest & Dividend Cover Interest cover Trading Profit Net Finance Charges times 2.9 4.8 5.1 6.5 3.6 Dividend...
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Ratio analysis is a useful technique for comparing a company’s performance and position with other companies. However, such comparisons may be... misleading. Some of the limitations of ratio analysis for cross-sectional comparisons are discussed below: Accounting policies: Accounting laws allow companies to choose accounting policies and use discretion while preparing accounts. Such a freedom leads to differences in the accounts of companies, which in turn distorts cross-sectional company comparisons...
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