Financial Ratio Analysis Essay -- Business Finance

Before beginning an analysis of a social club it is demand to have a complete set of financial statements, preferably for the pas hardly a(prenominal) years so that historical trends can be obtained. Ratios be a way for anyone to get an idea of the financial performance of a political party by using the information contained in the financial statements. Ratios atomic number 18 classify into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these proportions to analyze the firm, Sample Company, as of December 31,2000. Financial command Ratios Profitability Ratios The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a conjunction and, along with the P/E ratio, have the most significant rank of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and its birth to the companies generation of profits and uti lization of assets into the calculation. Additional profitability ratios include the harm earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to indicate to investor how pricey the shares of common stock of a firm are. Dividend yield is part of the stockholders ROI and is be by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for preferred 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 order to confirm their meaning. Sample Company For our Sample Co. there are several ratios that are minor, 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 rattling 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 retailer/merchandising company, and a e-commerce for 2000 would probably have a P/E great 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). chronicle What the Numbers Mean. 5th ed. San Francisco Irwin/McGraw-Hill.