my

Copyright, 2006, Jaxworks, All Rights Reserved.

Gross Profit MarginSales 23,949.00 Cost of Goods Sold 22,562.00

The gross profit margin is: 5.8%

Operating Profit MarginOperating profit 1,009.00 Sales 23,949.00

The operating profit margin is: 4.2%

Net Profit MarginNet Profits After Taxes 716.00 Sales 23,949.00

The net profit margin is: 3.0%

Return on Assets (ROA)Net Profits After Taxes 716.00 Total Assets 16,540.00

The return on assets is: 4.3%

Return on Equity (ROE)Net Profits After Taxes 716.00 Stockholders' Equity 6,005.00

The return on equity is: 11.9%

Earnings Per Share (EPS)Earnings Available to Common Stockholders' 716.00 Common Shares Outstanding 269.93

The earnings per share are: $0.38


Liquidity Analysis and RatiosXYZ Corporation

For Period Ending 12/31/2013

NET WORKING CAPITALCurrent Assets 4,369.00 Current Liabilities 6,765.00

The net working capital is: - 2,396.00

CURRENT RATIOCurrent Assets 4,369.00 Current Liabilities 6,765.00

The current ratio is: 0.65

QUICK RATIOCurrent Assets 4,369.00 Inventory 1,005.00 Current Liabilities 6,765.00

The quick ratio is: 0.50

Prepared by: Prepared on:


Copyright, 2003, JaxWorks, All Rights Reserved.

Current RatioThe current ratio compares a company's current assets (those that can be converted to cash during the current accounting period) to its current liabilities (those liabilities coming due during the same period). The usual formula is:

Current Ratio = Current Assets / Current Liabilities

The current ratio measures the company's ability to repay the principal amounts of its liabilities.

The current ratio is closely related to the concept of working capital. Working capital is the difference between current assets and current liabilities.

Is a high current ratio good or bad? Certainly, from the creditor's standpoint, a high current ratio means that the company is well-placed to pay back its loans. Consider, though, the nature of the current assets: they consist mainly of cash and cash equivalents. Funds invested in these types of assets do not contribute strongly and actively to the creation of income. Therefore, from the standpoint of stockholders and management, a current ratio that is very high means that the company's assets are not being used to best advantage.


Leverage RatiosDebt ratio 2014Total Liabilities 10,535.00 Total Assets 16,540.00 Debt ratio 0.64

Debt RatioThe debt ratio is defined by this formula:

Debt ratio = Total debt / Total assets

It is a healthy sign when a company's debt ratio is falls, although both stockholders and potential creditors would prefer to see the rate of decline in the debt ratio more closely match the decline in return on assets. As the return on assets falls, the net income available to make payments on debt also falls. This company should probably take action to retire some of its short-term debt, and the current portion of its long-term debt, as soon as possible.


Profitability RatiosReturn on Assets Full YearEBITDA $943 Total assets $16,540 Return on assets 5.7%

Return on AssetsOne of management's most important responsibilities is to bring about a profit by effective use of the resources it has at hand. One ratio that speaks to this question is return on assets. There are several ways to measure this return; one useful method is:

Return on Assets = (Gross Profit - Operating Expense) / Total Assets

This formula will return the percentage earnings for a company in terms of its total assets. The better the job that management does in managing its assets-the resources available to it-to bring about profits, the greater this percentage will be.

It's normal to calculate the return on total assets on an annual basis, rather than on a quarterly basis.


Profitability Ratios

Gross Profit MarginThe gross profit margin is a basic ratio that measures the added value that the market places on a company's non-manufacturing activities. Its formula is:

Gross profit margin = (Sales - Cost of Goods Sold) / Sales

The cost of goods sold is, clearly, an important component of the gross profit margin. It is usually calculated as the sum of the cost of materials the company purchases plus any labor involved in the manufacture of finished goods, plus associated overhead.

The gross profit margin depends heavily on the type of business in which a company is engaged. A service business, such as a financial services institution or a laundry, typically has little or no cost of goods sold. A manufacturing, wholesaling, or retailing company typically has a large cost of goods sold, with a gross profit margin that varies from 20 percent to 40 percent.

The gross profit margin measures the amount that customers are willing to pay for a company's product, over and above the company's cost for that product. As mentioned previously, this is the value that the company adds to that of the products it obtains from its suppliers. This margin can depend on the attractiveness of additional services, such as warranties, that the company provides. The gross profit margin also depends heavily on the ability of the sales force to persuade its customers of the value added by the company.

This added value is, of course, created by other costs such as operating expenses. In turn, these costs must be met largely by the gross profit on sales. If customers do not place sufficient value on whatever the company adds to its products, there will not be enough gross profit to pay for the associated costs. Therefore, the calculation of the gross profit margin helps to highlight the effectiveness of the company's sales strategies and sales management.


Profitability Ratios

Earnings Per Share (EPS)Depending on your financial objectives, you might consider investing in a company to obtain a steady return on your investment in the form of regular dividend payments, or to obtain a profit by owning the stock as the market value of its shares increases. These two objectives might both be met, but in practice they often are not. Companies frequently face a choice of distributing income in the form of dividends, or retaining that income to invest in research, new products, and expanded operations. The hope, of course, is that the retention of income to invest in the company will subsequently increase its income, thus making the company more profitable and increasing the market value of its stock.

In either case, Earnings Per Share (EPS) is an important measure of the company's income. Its basic formula is:

EPS = Income Available for Common Stock / Shares of Common Stock Outstanding

EPS is usually a poor candidate for vertical analysis, because different companies always have different numbers of shares of stock outstanding. It may be a good candidate for horizontal analysis, if you have access both to information about the company's income and shares outstanding. With both these items, you can control for major fluctuations over time in shares outstanding. This sort of control is important: it is not unusual for a company to purchase its own stock on the open market to reduce the number of outstanding shares. So doing increases the value of the EPS ratio, perhaps making the stock appear a more attractive investment.

Note that the EPS can decline steadily throughout the year. Because, the number of shares outstanding is constant throughout the year, the EPS changes are due solely to changes in net income.

Many companies issue at least two different kinds of stock: common and preferred. Preferred stock is issued under different conditions than common stock. Preferred stock is often callable at the company's discretion, it pays dividends at a different (usually, higher) rate per share, it might not carry voting privileges, and often has a higher priority than common stock as to the distribution of liquidated assets if the company goes out of business.

Calculating EPS for a company that has issued preferred stock introduces a slight complication. Because the company pays dividends on preferred stock before any distribution to shareholders of common stock, it is necessary to subtract these dividends from net income:

EPS (Net Income - Preferred Dividends) / Shares of Common Stock Outstanding

Profitability RatiosLiquidity Analysis & RatiosCurrent RatioDebt RatioROAGP MarginEPS

my

Documents

Transcript of my