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Submitted By trips

Words 827

Pages 4

Words 827

Pages 4

Jose De Jesus Farelas

Atwal Gurpreet

8/18/2014

Financial ratio analysis is an important tool to use when understanding your organization’s health. Some of the most-important ratios to use would be short-term liquidity ratios and the profitability ratios. In this paper, I will go over the current ratio, gross profit margin, net profit margin, return on assets, and return on equity. I will then explain how these ratios effect my chosen organization which is Hospira Investor Relations, and explain how they compare to the historical data as well as the companies benchmarks. Current ratio measures how well the firm can pay off it’s obligations. The past three years of Hospira Investor Relations the current ratios are 2013 2.44 times, 2012 2.68 times, and 2011 3.03 times. This means that in 2011 Hospira had an easier time paying off its obligations than 2012 and 2013. This is because the company’s liabilities were not as high in 2011 compared its 2012 and 2013 terms. In order to receive a better understanding of the company's profits, these profitability ratios must be used. The gross profit margin, net profit margin, return on assets, and return on equity. The gross profit margin is the total amount of sales done after cost of goods are sold. For Hospira, the gross profit margin for 2013 was 27.56%, in 2012 it was 29.14%, and in 2011, the gross profit margin was 34.68%. As you can see, Hospira has been losing profit since 2011 to 2013 with 2011 being its best year in sales. The net profit margin are the amount of sales that are remaining after the firm's expenses. In 2013 Hospira net profit margin was .2%, in 2012 the profit margin was 1%, and in 2011, the profit margin was .2%. From this data, it seems that Hospira has been having trouble profiting between these years. The firm's best year was...