Financial Reporting: Profitability Ratios

Coursework Instructions:

The objective here is for you to analyze the company in terms of its profitability, solvency, and liquidity, and to provide your investment and credit recommendations. Using the information you calculated on your MS Excel worksheet, address each of the following questions. Use the results of your ratio and other analyses to support your answers:

You are to discuss the following ratio categories for your company:

(i) Profitability
(ii) Turnover (activity)
(iii) Liquidity
(iv) Solvency
(v) Other (as applicable)

Look up what each of these terms means, and which ratios support the analysis of each. You can state what each ratio ‘tells’ us in general (do not report how the ratio is calculated - this is given in the excel file). Considering what the ratio is ‘telling’ us, analyze how your company is performing, and compare to your competitor. After presenting each of the individual ratios under their respective categories, finally, summarize how your company is performing in each of the five categories (profitability, turnover, liquidity, solvency, and other).

The below recommendations will be based on these conclusions.

Recommendations

To conclude your report, provide recommendations for whether:

a. Creditors should loan money to this company in the short-term
b. Creditors should loan money to this company in the long-term
c. Investors should buy, hold, or sell the stock (use the competitor as a baseline,and be sure to consider the current price of the stock)

Coursework Sample Content Preview:

Financial Reporting Names: Kelly Hanrahan, Ryan Clark, Sanjana Varma, Jaichen Liu Institution Date Profitability ratios Profitability ratios measure a firm’s returns relative to the asset investments, equity and sales. Apple’s profit margin is 21% compared to Microsoft at 24% and in the case of return on equity, Apple had 36% and Microsoft 29%. Microsoft had better margins indicated that the company lower share of cost of goods than Apple, which resulted in higher gross profit, but Microsoft’s return on assets is worse at 0.09 compared to Apple at 0.129 Turnover (activity) ratios Turnover ratios indicate an organization’s performance and effective utilization of assets. The receivable turnover was 12.825 for Apple and 4.545 for Microsoft indicating that apple collects receivables 12.83 times per year and the average collection time is shorter. A similar trend is in the Inventory turnover and for Apple, it is 29.052 versus Microsoft’s 15.709 and indicates how many times the average balance is used, turned into receivables or cash through sales and replaced. Liquidity ratios Liquidity ratios measure the ability to meet short-term obligations using the cash resources. Apple’s current ratio 1.276 and Microsoft’s 2.477 indicating that the ratio of current assets to liabilities was higher for Microsoft, but both companies are able to meet short term obligations. In the case of the quick ratio, this was 2.845 for apple and 2...

Updated on January 26, 2024

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