Financial Ratio Analysis Essay -- Business Finance

Before beginning an analysis of a ships company it is necessary to have a complete set of financial statements, kind of for the pas few years so that historical trends can be obtained. Ratios atomic number 18 a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will purpose a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000. fiscal Statement Ratios Profitability Ratios The ratios pass alongs on investment (ROI) and return on integrity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most large value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting gross revenue and its relationship to the companies generation of profits and utilization of ass ets into the calculation. Additional profitability ratios imply the price earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to forecast to investor how expensive the shares of common stock of a firm are. Dividend yield is separate of the stockholders ROI and is represented by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for like stock. Dividend payout ratio shows the proportion of the earnings paid to common shareholders. Dividend payout for manufacturing companies range from 30% to 50%, but can vary widely. Dupont Analysis (ROI) - Return on Investment The return on Investment (ROI) is important because it describes the rate of return the company was able to... ... ratios, should be assessed over time in cabaret to verify their meaning. Sample Company For our Sample Co. there are some(prenominal) ratios that are low, for the average manufacturing company. The ROI and ROE are below average as are the current ratio and the acid-test ratio. The P/E ratio is $42 / $3.51 = 12, which seems very good and both the debt ratio and debt to equity ratio are within the guideline. With the good and bad of these ratios hard to tell what sort of industry this is. With the ROI, ROE, and acid-test low like they are it doesnt seem like a retail merchant/merchandising company, and a e-commerce for 2000 would probably have a P/E greater than 12. What that leaves is an international service company of some kind, so Ill go with that. Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting What the Numbers Mean. 5th ed. San Francisco Irwin/McGraw-Hill.