Ratio analysis Colgate 2013
10 marks for analyzing the company’s financial situation.
Profitability Analysis
We will access to different aspect of return on investment. Firstly, return on assets of 17% in Colgate implies that a $1 asset investment generates 17 cents of annual earnings before subtracting after-tax interest. Secondly, return on common equity shows 99.73% which means that it earns 99.73 cents annually for each $1 of equity investment. Equity shareholder will look at the return on equity because they want a higher return of investment. Both of these ratios are significantly higher than the average for publicly traded companies of approximately 5.63% and 18.24%. It is conclude that the Colgate’s return on equity is higher than the benchmark industry.
Next part will be evaluating the operating performance. This is done by examining ratios that typically link income statement line items to sales. These ratios are gross profit margin, operating profit margin and net profit margin ratio. The ratios are also comparable to results from common-size income statement analysis. Colgate’s gross profit margin of 58.56% indicates that it is selling well above its cost of production, despite the intensely competitive consumer products’ markets. Its operating profit margin of 20.41% and net profit margin of 12.86% are above the average for the industry which is showing 9.81% and 7.61% in the industry. In short, Colgate’s pricing power and superior control of production costs make it a very profitability company. The higher percentages of these ratios’ result, the better the company performances.
Asset utilization analysis is one of the item from profitability analysis. It relates sales to different asset categories which are important determinants of return on investment. These ratios for Colgate are above average performance. For example, Colgate’s cash turnover is 18.87 which is higher than the average for the industry. Colgate’s account receivable turnover and inventory
Profitability Analysis
We will access to different aspect of return on investment. Firstly, return on assets of 17% in Colgate implies that a $1 asset investment generates 17 cents of annual earnings before subtracting after-tax interest. Secondly, return on common equity shows 99.73% which means that it earns 99.73 cents annually for each $1 of equity investment. Equity shareholder will look at the return on equity because they want a higher return of investment. Both of these ratios are significantly higher than the average for publicly traded companies of approximately 5.63% and 18.24%. It is conclude that the Colgate’s return on equity is higher than the benchmark industry.
Next part will be evaluating the operating performance. This is done by examining ratios that typically link income statement line items to sales. These ratios are gross profit margin, operating profit margin and net profit margin ratio. The ratios are also comparable to results from common-size income statement analysis. Colgate’s gross profit margin of 58.56% indicates that it is selling well above its cost of production, despite the intensely competitive consumer products’ markets. Its operating profit margin of 20.41% and net profit margin of 12.86% are above the average for the industry which is showing 9.81% and 7.61% in the industry. In short, Colgate’s pricing power and superior control of production costs make it a very profitability company. The higher percentages of these ratios’ result, the better the company performances.
Asset utilization analysis is one of the item from profitability analysis. It relates sales to different asset categories which are important determinants of return on investment. These ratios for Colgate are above average performance. For example, Colgate’s cash turnover is 18.87 which is higher than the average for the industry. Colgate’s account receivable turnover and inventory