Lower the ratio, more the company is burdened by debt expenses. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. Return on Assets measures how efficient firm assets in generating profit. It is expressed in percentage. Higher the ROA, more money the company is earning on its assets.
Solvency Ratios This ratio used to measure the company’s ability to pay its debt indicates The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations. • Debt to Equity = Total debt Total equity AVON= -4.5 ULTA= .65 REVLON= -5.9 This ratio represent the financial efficiency being used by the company and including both short term and long term debt. A Debt to Equity ratio of 2 indicates that the company gets two-thirds of its capital financing from debt and one-third from shareholder equity, so it borrows twice funding as it owns, this ratio as benchmark shouldn’t be more than 2 to avoid higher interest expense, and in some cases could affect the company credit score. • Debt to assets = Total debt Total assets This ratio indicate that the company gets all its capital finance from debt with negative equity This ratio is comparing between the total debt and the total assets to show the company’s ability to cover its debt using its assets, ratio greater than 1 shows that a big portion of debt is funded by assets, which means, the company has more liabilities than assets AVON= = 1.12 ULTA= .39 REVLON= 1.2 Avon products company has debt more than its
For Total shareholder equity- asset ratio, the company have decrease of 70.19% in 2009 to 62.49% in 2010. 3. Analyze accounts receivable and allowance for doubtful accounts. The allowance for doubtful accounts is upheld for the client who have low credibility. Account receivable is money or outstanding invoice owned from the customers.
Ratio Analysis : The following is the detailed ratio analysis of Hero motor corporation as follows Profitability Ratios: profitability ratios are calculated to measure Company’s performance by analyzing results obtained through ratio analysis. Purpose is to assess the adequacy of profits earned by the company and to discover whether profitability is increasing or declining Gross Profit Ratio: Gross profit is very important for any business. It should be sufficient to cover all expenses and provide for profit. Higher the ratio the better the profitability The ratio assumes great importance to financers of the company as it reveals the cash availability of the firm for payment of interest taxes and to cover fixed expenses , dividends and building
Current ratio enables us to examine the liquidity of the business by equating the amount of current assets to current liabilities. Although current ratio fluctuates from industry to industry, is preferred to have at least one dollar of current assets for every dollar of current liabilities. Kohl's has the advantage over J.C Penney, as Kohl's current ratio is 1.87 in comparison to J.C. Penney?s ratio of 1.67. Kohl?s Corporation can pay all of its current liability and still have a positive working capital better than J.C.
Question 1 – Reporting environment relevant information for an investment company A year ago you bought shares in an investment company. The investment company in turn buys, holds and sells shares of business enterprises. You want to use the financial statements of the investment company to assess its performance over the past year. Required: (a) In less than 250 words explain and identify in a bulleted listing what financial information about the investment company’s holdings would be most relevant to you? (6 marks) (b) Knowing that the investment company earns profits from appreciation of its investment securities and from dividends received, in less than 200 words, explain how would the concepts of recognition in the conceptual framework apply here?
If it is assumed as a preferred stock, appropriate measures would be to discount cash flows at an unlevered cost of capital. Asset cost of capital is associated with the cost of funds used to run a business. On the contrary, given that the margins of A3XX were based on earnings before the repayment of launching aids and RSPs, the investment can be taken as a debt and would require the calculation of the value using interest tax shields by using either a levered cost of capital such as weighted average cost of capital
Solution : Introduction: A budget is an estimation of particular commodity, quantity etc. It can be prepared for any number of days but generally it is prepared wither for a year or quarter... A budget may or may not become the actual outcome. A sales budget can be defined as a projection of how much a particular business or organization will be able to sell its product within a Year. It is always an anticipated. Budgets serve as a framework and help managers to estimate likely incomes and expenditures for specific periods so that they may determine the most effective and efficient strategies for profitability and asset expansion.
Dollar General profit margin comparison company ration analysis is lower than the others in 2007. As the data showed Dollar General Performance and profitability compared to the industry peers declined. The metrics to focus are on the internal aspects are sales per employee, net income per employee and operating cash flow per employee to understand why the decline in profits. On the external aspect, the important metrics are ROE, ROA, profit margin, asset turn over and working capital turn over, debt-to-equity ratio. This metric is a benchmark to understand the liquidity, solvency, and profitability of a company that facilitated the assessment of company
Ratio Analysis: Liquidity Analyzing liquidity ratios determines whether or not a corporation has enough assets to cover it’s short term liabilities. Although Gemini Electronics’ current ratio is below industry average, in general, a company a 2:1 ratio of assets to liabilities indicates that a company is in good standing to pay off it’s short term liabilities. Although this is the general rule of thumb, we need to analyze what comprises Gemini Electronics’ current assets portfolio. Upon analyzing, we can see that: • Out of the total $1,267,311,420 of current assets in 2009, approximately 50% of it was tied into inventory accounts • Out of the total $3,162,140,833 current assets in 2008, approximately 51% of it was tied into inventory account
1) a. current liability: Money that a business owner must pay to a creditor within 12 months of the balance sheet date is a current liability. Ideally, short-term assets, such as cash and accounts receivable, should more than offset short-term liabilities, such as accounts payable, notes payable and payroll. If they do, the company 's short-term liquidity position is positive, which suggests the company will likely meet its cash-flow needs and remain a going concern. It is wise for a business owner to remain alert to his company 's current liabilities and the cash and assets that will be turned to cash within one year to meet these obligations. 1) b.
One of the ratios impacted by the new store would be profit margin ratio. This ratio measures net income earned with each dollar made in sales, so this ratio can either increase or decrease depending if the store is profitable or not. The ROA will measure how efficient all the assets are being use to make a higher profit for 365. ROE will calculate how much profit is made from the investment of the shareholders, which is needed for the construction of the stores. The current ratio will show the liquidity of the company and how fast they will be able to pay their debt encounter during the expansion.