PROFITABILITY RATIOS One of the most important measures of a company’s success is its profitability. However‚ individual figures shown in the income statement/profit and loss account for gross profit and net profit mean very little by themselves. When these profit figures are expressed as a percentage of sales‚ they are more useful. This percentage can then be compared with those of previous years‚ or with the percentages of other similar companies. Changes in the gross profit percentage ratio can be
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evaluate how well it is performing‚ one of those tools is the debt ratio calculation. The debt ratio shows the proportion of assets financed with debt‚ liabilities. It is calculated by the companies total liabilities divided by its total assets and is used as a percentage. Total assets and total debts can be found on the balance sheet. “It can be used to evaluate a business’s ability to pay its debt” (Nobles p. 89). The debt ratio can be used to evaluate a business’s ability to pay it’s debts.
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Efficiency Ratios The efficiency ratio is an indicator of how well Johnson and Johnson (J&J) is run on an organizational wide basis. Efficiency ratios are also defined as asset turnover ratios (Finkler‚ Kovner & Jones‚ 2007). The asset turnover ratio measures how productive J&J is in managing all of its assets to generate Sales. This efficiency ratio is calculated by dividing sales by total assets by total revenue. For year 2010‚ J&J had an asset turnover of 0.6. Comparing J&J’s
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The Golden Ratio The golden ratio is a number used in mathematics‚ art‚ architecture‚ nature‚ and architecture. Also known as‚ the divine proportion‚ golden mean‚ or golden section it expresses the relationship that the sum of two quantities is to the larger quantity as is the larger is to the smaller. It is also a number often encountered when taking the ratios of differences in different geometric figures. Represented mathematically as approximately 1.618033989‚ and by the Greek letter Phi
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company’s financial leverage‚ calculated by dividing a company’s total liabilities by its stockholder’s equity. This ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity. Most company is taking on debts as to increase its value by using borrowed money to fund various projects. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. If a lot of debt is used to finance
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CURRENT RATIO It is a liquidity ratio that measures a company’s ability to pay short-term obligations. Also known as "liquidity ratio"‚ "cash asset ratio" and "cash ratio". By putting to test a company’s financial strength‚ deduces company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash‚ inventory‚ receivables). The higher the current ratio‚ the more capable the company is of paying its obligations. An acceptable current ratio varies
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Part A After-TAX Cost Debt O’Grandy Apparel Company can calculate the after tax debt cost using YTM (CP + (FV-Nd /n) / FV +Nd /2) *2. Cp is (0.12/2) * 1000= 60 Semi-annually Fv is 1000 Nd is 995 – (0.025* 1000) = 970 N is 20*2 because it is semi-annually then you have to use Kdt= Kd+ (i-T) .The tax bracket is 40 percent. Now we can have the after tax debt when it is equal or smaller than $700000 Kd ( 1-T) = 0.1249 (1-0.4)= 0.07494. If it is more than $700000 it will be KD (1-t) = 0.18(1-0.4)
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Liquidity Ratio Current ratio depicts how the company’s ability to payback its current liabilities and current assets. In 2011 the ratio is at its highest of 3.32 since the company put in capital. During this year they tested the waters on whether they could pay off short term debt. It went on a decreasing rate from 2012 to 2014 but had a slight increased on 2015. During 2012 to 2014 the company is struggling to pay back its liabilities and assets while financial health was at risk because
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Short-term Liquidity Current ratio: Coke’s current ratio have growth constantly during the period (2014 - 2016). In 2016‚ the current ratio is 1.28 which is higher than the previous year ratio‚ 1.24. It means that Coke has more $1.28 current assets to cover every dollar of its short-term debt. In this year‚ the current asset in the total assets increases 1.84%. The factor that contributes to the increase of Coke’s current asset is the significant increase of the Cash and cash equivalent account which
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company’s solvency is their debt- to-asset ratio. “This ratio indicates the proportion of total assets that are financed by debt.” (text) If this ratio is high it indicates a greater financing risk. In 2007 WestJet’s debt-to-asset ratio was 68.2%‚ it decreased in 2008 to 66.9%. This means they are financing more of the assets with equity in 2008 compared to 2007. When we compare this ratio to Air Canada we see a telling story. In 2007 Air Canada’s debt-to-asset ratio was 77.8%‚ but in 2008 it rose to 91
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