Your assignment this week is to analyze current financial ratios for a given bus
ID: 2757673 • Letter: Y
Question
Your assignment this week is to analyze current financial ratios for a given business.
1. Think of a specific business you find interesting, i.e. Apple, UTC, Southwest Airlines, etc.
2. Search the web for that business’ “Financial Statement”. (You will find many hits for the data.)
3. Select the “Bloomberg” site offering your company’s financial statement.
4. Once at the site you will find a box highlighted in blue termed “Ratios”. Click on that box.
5. You will now see a number of financial ratios for your company. Below is an example for Apple.
6. Now, define the following ratios, note the ratio for your business, and explain what the ratio means for the business moving forward:
a) Return on Assets
b) Return on Equity
c) Return on Capital
d) Gross Margin
e) SG&A Margin
f) Current Ratio
g) Quick Ratio
h) Total Debt/Equity
i) Total Revenue
j) Gross Profit
Explanation / Answer
a) Return on Assets
=Net profit after tax / Total assets
It measures the profitability of the total funds per investment of a firm.
b) Return on Equity
= Net profit after taxes / total shareholders’ equity
It reveals how profitably the owners fund has been utilized by the firm.
c) Return on Capital
= Net profit after tax / Total capital employed
It measures profitability of the firm with respect to the total capital employed. The higher the ratio, the more efficient use of capital.
d) Gross Margin
= Gross Margin / Sales
It measures the profit in relation to sales. A firm should neither have a high ration nor a low ratio.
e) SG&A Margin
= SG&A expense / Net sales
It measures the specific expenses per sales.
f) Current Ratio
= Current Assets / Current Liabilities
It measures the short term liquidity of a firm. A firm with a higher ratio has better liquidity. A ratio of 2 : 1 is considered safe.
g) Quick Ratio
= Quick Assets / Current liabilities
It measures the liquidity position of a firm. A ratio of 1:1 is considered safe.
h) Total Debt/Equity
= Total Debt / Total Equity
It shows the leverage effect.
i) Total Revenue
= Total Revenue / Total Asset
It measures the efficiency of a firm in managing and utilizing its assets. Higher the ratio, more efficient is the firm in utilizing its assets.
j) Gross Profit
= Gross Profit / Net Sales
It is the profitability ratio.
a) Return on Assets
=Net profit after tax / Total assets
It measures the profitability of the total funds per investment of a firm.
b) Return on Equity
= Net profit after taxes / total shareholders’ equity
It reveals how profitably the owners fund has been utilized by the firm.
c) Return on Capital
= Net profit after tax / Total capital employed
It measures profitability of the firm with respect to the total capital employed. The higher the ratio, the more efficient use of capital.
d) Gross Margin
= Gross Margin / Sales
It measures the profit in relation to sales. A firm should neither have a high ration nor a low ratio.
e) SG&A Margin
= SG&A expense / Net sales
It measures the specific expenses per sales.
f) Current Ratio
= Current Assets / Current Liabilities
It measures the short term liquidity of a firm. A firm with a higher ratio has better liquidity. A ratio of 2 : 1 is considered safe.
g) Quick Ratio
= Quick Assets / Current liabilities
It measures the liquidity position of a firm. A ratio of 1:1 is considered safe.
h) Total Debt/Equity
= Total Debt / Total Equity
It shows the leverage effect.
i) Total Revenue
= Total Revenue / Total Asset
It measures the efficiency of a firm in managing and utilizing its assets. Higher the ratio, more efficient is the firm in utilizing its assets.
j) Gross Profit
= Gross Profit / Net Sales
It is the profitability ratio.
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