Premium Essay

Ratios Tell Stories

In: Business and Management

Submitted By huongpiano90
Words 1871
Pages 8
UV1765

RATIOS TELL A STORY—2005

Financial results vary between companies for a number of reasons. One reason for the variation can be traced to the characteristics of the industries in which the companies operate. For example, some industries require large investments in property, plant, and equipment, while others require very little. In some industries, the product-pricing structure allows companies to earn significant profits per sales dollar, while in other industries the product-pricing structure imposes a much lower profit margin. In most low-margin industries, however, companies often experience a relatively high volume of product throughput in their businesses. A number of industries are also characterized by lenient credit terms, while others sell for cash only.
A second reason for some of the variation in financial results between companies is the result of management policy. Some companies reduce their manufacturing capacity to match more closely their immediate sales prospects, while others carry excess capacity to be prepared for future expansion. Also, some companies finance their assets with borrowed funds, while others avoid that leverage and finance their assets with owners’ equity.
Of course, one other reason for some of the variation in reported results between companies is the differing competencies of management. Given the same industry characteristics and the same management policies, different companies may report different financial results simply because their managements perform differently.
Those differences in industry characteristics, in company policies, and in management performance are reflected in the financial statements published by publicly held companies, and can be highlighted through the use of financial ratios.
Exhibit 1 presents balance sheets in percentage form and selected ratios computed from fiscal-2005 balance sheets...

Similar Documents

Premium Essay

Ratios Tell a Story

...Baikang Yuan Professor Gary Osmond FINA 3301 Section 07 Assignment: Ratios Tell A Story 09/24/2015 Ratios Tell A Story Commercial banking, tax preparation and diversified financial services, and computer software development are three industries that have no inventory. So they match No.2, No.4 and No.11. Since developing computer software needs more development expense, No.2 has the highest research and development expense ratio, thus it matches computer software development. Commercial banking has a lot of loans and deposits. No.11 has the highest account receivable and the highest current liabilities so that it matches commercial banking. Then, No.4 matches tax preparation and diversified financial services. Wholesale food distribution has high inventory and its ROS&ROA should be lower than other industries. No.10 matches it best because it has the highest inventory and very low ROS and ROA. Pharmaceutical needs very high research and development expense. Also, we know that pharmacy is a really high-profit business, so its ROS should be very high. No.9 matches it because it has the highest research and development ratio and the highest ROS. Electric utility needs a great number of equipment. No.5 matches it because it has the highest net property, plant and equipment. No.12 matches computer and office equipment production and servicing because it has the second highest net property, plant and equipment. No.6 matches supermarket chain because it has the...

Words: 381 - Pages: 2

Premium Essay

Ratio Tell Story

...D O N O T C O PY Balance Sheet Detective 05/2011-5791 This case was written by Elizabeth Demers, Assistant Professor of Accounting and Control at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2011 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. Exhibit 1 shows the common-size, fiscal year 2005 balance sheets of 9 companies operating in different industries and headquartered in various countries, as described below. Use your economic intuition and the financial information cues provided in the common-size balance sheets to match the companies and industries described below with those depicted in the exhibit. O PY EDF (France) Electricité de France (EDF) is a large French utility company that was recently privatized via an initial public offering. The company's principal activity is the generation, transmission, distribution, import and export of electricity and other forms of energy. The Group has operations in France, United Kingdom, Spain, Belgium, Switzerland, Germany, Poland, Italy, Slovakia, Hungary, US, Mexico, Morocco, China, Brazil, Ivory Coast, Laos,......

Words: 1348 - Pages: 6

Premium Essay

Ratios Tell a Story

...MGMT301 Hyeonseok Kim 11175120 Roger Yu’s article in USA TODAY has five key concepts. BlackBerry hired a new CEO, Jim Basillie to pursue a new business strategy. The company, RIM (Research In Motion) makers of BlackBerry were at one time the leaders of the smartphone market. In 2011 BlackBerry owned 11.1% of the market, Apple had the second largest share with 18.2% of the market, and with Android leading at 49%. BlackBerry’s plans to launch the playbook two and the new operating system in the coming year. Despite their efforts to change the company, many expertises argue there is no room for a new operating system in the smartphone market, especially with the release of Microsoft’s Windows 7 phone. This article is related to our discussion about leadership in our class. The company, BlackBerry is receiving new leadership who faces the challenge of competing in the smartphone market. The announcement by Jim Balsillie, the new CEO of RIM is related with leadership, especially visionary leadership. The leader with a vision is better equipped to handle challenges they face. Although the new CEO of the company is not pushing forward to radically change the business he acknowledges their business is falling behind in smartphone competition and has a new plan to survive the challenge. Vision provides where to go and a great control over......

Words: 480 - Pages: 2

Premium Essay

Ratio Tell a Story

...Some industries have differences strategy about the product pricing, profit margin, and rate of product throughput, while in other industries adjust their capacity to match with company’s plan for future. The case also provides examples of company’s policy, some companies borrow fund, and others avoid that. That is reflected all in financial results. Analysis: Airline: 7 Automobile Manufacturing: 8 Pharmaceutical: 9 Commercial Banking: 11 Computer and office equipment manufacturing: 12 Discount general-merchandise retail: 13 Electric utility: 5 Fast Food: 1 Wholesale food distribution: 10 Supermarket: 6 Internet retail: 3 Specialized staffing services: 4 Software development: 2 I pick two industry with the highest R&D ratio are pharmaceutical and software development. The one with no inventory is software development as number 2 and pharmaceutical matches with number 9. Commercial banking matches number 11 because it will have the highest current liabilities as well as the receivables collection. I matched two industries with the same receivables collection is 23 are Internet retail and electric utility, and the industry has higher total current assets is Electric utility as number 5. So, internet retail matches with number 3. Fast food, Wholesale food distribution, and Supermarket are three of the industry has the lowest receivables collection. The industry with the highest current asset is super market and marked number 6. The second highest......

Words: 298 - Pages: 2

Premium Essay

Ratios Tell a Story

...2 is a Computer software development industry due to high R&D cost and inventory turnover is NA.Since in a Sofware development industry R&D is high this satisfies it. 12 is a fast food industry as Inventory turnover is high as well as ROE and ROA which suggests that Assets is low.Since Fast foods have typically have high turnover to prevent spoilage No 12 satisfies it. Since only 2,7,8,9, have R&D cost they must be between Pharmaceutical ,railroad,Electrical Utlility and Software development respectively. Since in Wireless Communications Industry typically bills are paid on a monthly basis which means it must have receivable collection of around 30 days. No 5 satisfies it. It also doesn't have R&D cost and Inventory Turnover. No 10 is a grocery as the average inventory turnover for grocery is around 25.Also it R&D cost is N/A No 8 is a Pharma industry as it has high gross margin and R&D. It also has high ROS and ROA respectively .Pharma Industry has high R&D as profits earned on Sales is high. Internet Retailing has to be between 1 and 6 as their receivable collection is generally low.Since 1 has better inventory turnover than 6 ,1 has to be Internet Retailing. 7 has to be a Electrical Utility as it normally has less R&D involved than Software Development and Pharmaceutical respectively.This leaves us with railroad for 9 as it has huge assets so it will have less Asset turnover when compare to electrical utility. No 11 is Commercial......

Words: 384 - Pages: 2

Premium Essay

7 Faces of Profits

...reports flood mailboxes and dailies, and the words ‘earnings’ and ‘profit’ jump out from all over. But which profit should you consider to evaluate a company? What is the utility of profitability measures? Here’s a guide to understanding profits. Gross Profit What is it? It is the amount earned from sale of products after deducting production costs. What it does: Signals efficiency with which a company is making money. Indicates how much mark-up a company can generate on its sales. Other clues: A company with rising gross profit means it can command premium prices. This also implies cost efficiency, making the company highly competitive. Black spots: Works as a primary indicator. Gross profit is similar to an incomplete story. To know more about a company, you have to read other signs. Ebitda What is it? It means earnings (or profit) before interest, taxes, depreciation and amortisation. It is calculated by subtracting operating, general, administrative and marketing expenses from gross profits. What it does : Measures profitability. Say, you are having trouble deciding between companies, it is the best tool to compare them because it weeds out the effects of financing and accounting decisions. Other clues: You can also compare sectors. Black spots: Ebitda is not a good measure of cash flows. Companies may use it to dress up earnings. Ebit, or operating profit What is it? Ebit is earnings before interest and taxes. It is......

Words: 854 - Pages: 4

Premium Essay

Ratiostell a Story 2005

...SSRN Inspection UVA-C-2235 International Ratios Tell A Story—2005 TO ACCESS THIS DOCUMENT This is a protected document. The first two pages are available for everyone to see, but only faculty members who have verified faculty status with Darden Business Publishing are able to view this entire inspection copy. Username: Submit VERIFIED FACULTY If you have verified faculty status with Darden Business Publishing, simply enter the same username that you use on the Darden Business Publishing Web site, and then click “Submit.” Please note that this is an inspection copy and is not for classroom use. Faculty Register UNVERIFIED FACULTY If you are teaching faculty and do not yet have verified faculty access with Darden Business Publishing, please click on the “Faculty Register” link and submit your information requesting verified faculty access. Buy Case Now OTHER USERS If you would like to read the full document, click on “Buy Case Now” to be redirected to the Darden Business Publishing Web site where you can purchase this and other Darden cases. If you have any questions or need technical help, please contact Darden Business Publishing at 1-800-246-3367 or email sales@dardenbusinesspublishing.com Document Id 0000-1402-56F1-0000576A The protectedpdf technology is © Copyright 2006 Vitrium Systems Inc. All Rights Reserved. Patents Pending. UVA-C-2235 INTERNATIONAL RATIOS TELL A STORY: 2005 An income statement conveys the results......

Words: 1973 - Pages: 8

Premium Essay

Evaluating Wal-Mart Financial Health

...Evaluating Wal-Mart's Financial Health Elizabeth ACC/230 October 16, 2011 Tarsha Bowie Evaluating Wal-Mart's Financial Health Wal-Mart is a big multi-billion dollar company. There are millions of stores all over the world and they generate billions of dollars in sales, but just because a company is a multi-billion dollar company does not mean their financial health is all that great. So the purpose of this paper is to break down the financials of Wal-Mart and analyze the financial health of Wal-Mart. I will be using the annual reports from 2009, 2010 and 2011 to examine and break down the various trends over the 3 years and be able to see what trends keep on happening, which trends are good for Wal-Mart and which trends are damaging them. I will be breaking down not only the financials, but also the current and future outlook on the business according to the trends that the financials show. I will also be taking into account the success of the company’s operations and the outlook of the current economy and how that has affected the financials. And then last but not least, I will be comparing the financial health of Wal-Mart to other companies the same industry and seeing how they are doing compared to Wal-Mart. First of all, I will summarize the financial information for Wal-Mart. I used the years 2009, 2010, and 2011 annual reports to gather my information. In the 2009 annual report the first thing they state right off the bat is the highlights, which......

Words: 1672 - Pages: 7

Premium Essay

Finance

...Financial Analysis of the McDonalds Company Stock ticker symbol, exchange where traded _________ Address of company headquarters _________ Company phone number __________ Your name, etc. PART 1, COMPANY OVERVIEW: a. Brief description of the company (one paragraph, briefly summarizing the company’s business) b. Company history (origin, major developments, etc.) c. Organization (describe how the company is structured) d. Main products and services (describe what the company sells; how it makes money) e. Geographic area of operations (describe where the company sells its products) f. Recent developments (list recent major news stories, if any) PART 2, FINANCIAL OVERVIEW: a. Sales and Income Record: ------------- Fiscal Years ------------- 2010 2011 2012 2013 2014 -- Sales ____ ____ ____ ____ ____ -- Percent change in sales each year ____ ____ ____ ____ -- Net Income ____ ____ ____ ____ ____ -- Percent change in net income each year ____ ____ ____ ____ GRAPH OF SALES & NET INCOME, FY 2010 - 2014 -| -| -| (Plot Sales and Net Income for the -| last five fiscal years on the graph) -| -| (Recommend you prepare the graph in Excel, -| then copy and paste it into the report) -| -| -| -|--------|---------|---------|---------| 2010 2011 2012 2013 ......

Words: 593 - Pages: 3

Premium Essay

Week 6 Hw

...Financial Analysis of the McDonalds Company Stock ticker symbol, exchange where traded _________ Address of company headquarters _________ Company phone number __________ Your name, etc. PART 1, COMPANY OVERVIEW: a. Brief description of the company (one paragraph, briefly summarizing the company’s business) b. Company history (origin, major developments, etc.) c. Organization (describe how the company is structured) d. Main products and services (describe what the company sells; how it makes money) e. Geographic area of operations (describe where the company sells its products) f. Recent developments (list recent major news stories, if any) PART 2, FINANCIAL OVERVIEW: a. Sales and Income Record: ------------- Fiscal Years ------------- 2008 2009 2010 2011 2012 Sales ____ ____ ____ ____ ____ Percent change in sales each year ____ ____ ____ ____ Net Income ____ ____ ____ ____ ____ Percent change in net income each year ____ ____ ____ ____ GRAPH OF SALES & NET INCOME, FY 2008 2012 | | | (Plot Sales and Net Income for the | last five fiscal years on the graph) | | (Recommend you prepare the graph in Excel, | then copy and paste it into the report) | | | ||||| 2008 2009 2010 2011 ......

Words: 606 - Pages: 3

Premium Essay

Odyssey vs Ulysses

...Cox Mrs. Chrisman HUM 2103 April, 26 2014 Odyssey VS Ulysses The movies Odyssey and Ulysses tell a story based off of the poem the Iliad by homer. Odyssey was very captivating in the way that the story that was told it was more in depth compared to Ulysses. However, both movies tell a story of the same person and his journey back to Ithica after the Trojan War. Odysseus coming in lieu of the Greeks, and Ulysses from the Romans. The story is about Odysseus, King of Ithica and his wife Penelope; the Odyssey starts with the birth of Telemachus while the start of Ulyssescompelling story overall because, of the in-depth look it gives into the war Odysseus return to Ithica. The sound effects the two movie differ in these areas as well, they differ with the overall film quality. The films are the telling of an epic poem and they are quite old in the quality ratios. Where the films differ was with the sound effects and the film quality. The production of Ulysses was a much different that of Odyssey the video was much easier to watch. Some may agree that Odyssey was a better quality movie overall and they could potentially be correct, the sound effects are much better in odyssey. However, in Ulysses the movie had better, picture quality, and the sound that was record was greater quality and the film itself was a better quality. The two movie were, a great magnificent stories in the telling of the epic poem by Homer the two movies are, very compelling in several ways.......

Words: 823 - Pages: 4

Premium Essay

Financial Managment

...was an analysis based upon the year of 2010 Coca Cola Enterprise would be better able to pay current liabilities. The company sold $25.5 billion unit cases in 2010 versus the $24 billion in 2009. Coca Cola also had a 13% increase in gross profit and operating revenue. (Coca-Cola, 2011) Pepsi Co in the year 2010 also experienced steady growth in revenue and 12% growth of earnings per share. Pepsi Co continued to deliver top tier financial returns in the year 2010. Pepsi Co Americas Foods provided the largest operating profit of 53% in the year 2010. (PepsiCo, n.d) Determine what profitability ratios can tell you about a company’s performance and how that information would influence investing decisions. Profitability ratios measure how well a company is performing based on an analysis of how profit was earned relative to sales, total assets and net worth. A financial ratio analysis starts by building on the previous three to...

Words: 1262 - Pages: 6

Free Essay

English

...they affect the tone and feel of a film • Be familiar with different methods of photographing a film, and with terms such as panning, tilting, tracking shots, deep focus, and aspect ratios • Understand how different focal length lenses affect the look of a shot • Recognize what special effects can do for a movie—and what they can’t do 4.1 The “Look” of a Scene W hen we are first introduced to Don Vito Corleone in The Godfather, played by Marlon Brando, the Mafia boss is sitting in the study of his home. Along with his consigliore, or adviser, Tom Hagen (Robert Duvall), Corleone is listening to a line of people requesting favors on the day of his daughter’s wedding. Corleone is immensely powerful, as we learn by the scope of the favors he is asked to grant, which in one case includes the desire of a singer to be cast in a film to revive his musical career, and Corleone’s ability to grant them. However, it is not just what Corleone says in the scene, which introduces us to all that will follow, that makes us aware of his power. It is also how the scene looks, how it is shot, and how color and light are combined that give The Godfather such an immediately distinctive feel. The rich hues, the closed blinds, the placing of Corleone behind the desk, a traditional seat of power, tell us that this is a man in...

Words: 13907 - Pages: 56

Premium Essay

Ratios Tell a

...UV1765 RATIOS TELL A STORY—2005 Financial results vary between companies for a number of reasons. One reason for the variation can be traced to the characteristics of the industries in which the companies operate. For example, some industries require large investments in property, plant, and equipment, while others require very little. In some industries, the product-pricing structure allows companies to earn significant profits per sales dollar, while in other industries the product-pricing structure imposes a much lower profit margin. In most low-margin industries, however, companies often experience a relatively high volume of product throughput in their businesses. A number of industries are also characterized by lenient credit terms, while others sell for cash only. A second reason for some of the variation in financial results between companies is the result of management policy. Some companies reduce their manufacturing capacity to match more closely their immediate sales prospects, while others carry excess capacity to be prepared for future expansion. Also, some companies finance their assets with borrowed funds, while others avoid that leverage and finance their assets with owners’ equity. Of course, one other reason for some of the variation in reported results between companies is the differing competencies of management. Given the same industry characteristics and the same management policies, different companies may report different......

Words: 1815 - Pages: 8

Premium Essay

La Carte Didentite de La Terre

...look at these companies from the financial perspective, comparing their different financial ratios. Some of the important ratios that should be analyzed are the liquidity ratios, profitability ratios, cash flow indicators and investment valuation ratios. By analyzing the financial ratios this paper will help determine which of these two companies the better investment is. Ratios computation and analysis 1) Using the current ratio, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt). A common liquidity ratio is the current ratio. This is calculated as the current assets / current liabilities. The current ratio reflects the ability of the company to meets its financial obligations for the next year. The current assets reflect assets that can be liquidated quickly, for example cash, inventories and receivables. The current ratio for Pepsi is $12,571 / $8756 = 1.44. The current ratio for Coca-Cola is $17,551 / $13,721 = 1.28. The current ratio illustrates that Pepsi is more liquid. Both companies have healthy current ratios, but Pepsi’s is stronger. This reflects that PepsiCo has a greater capacity to pay its debts, should they be called quickly. The debt ratio can also be used, and this is a basic measure of the firm’s capital structure, calculated as total liabilities / total assets. For Pepsi, the debt ratio...

Words: 1411 - Pages: 6