Wgu Fnt1 Task 1 Essay

As well as if the company is good for issuing a loan, or investing in some other fashion such as bonds. For better breakdown these ratios have been separated in three categories: Measure of Profitability, Measures of Liquidity, and Measures of Solvency.

Recessions and market downturns expose companies that have been too reckless with their debt management. The debt/equity (D/E) radio expresses a company's total debt as a percentage of its equity. Ideally, a company's debt should be lower than its equity, which means a D/E ratio of fewer than 100% is

The current cash debt ratio only measures the ability of a firm 's cash, along with investments easily converted into cash, to pay its short-term obligations. In 2007, the company has a current cash debt ratio greater than 1 and is in better financial shape than in 2006, when the ratio was less than 1.

* Return on assets (ROA) – ROA shows how successful a company is in generating profits on the amount of assets they own. Since assets consist of debt and equity, ROA is a measure of how well a company converts investment dollars into profit. The higher the percentage, the more profit a company is generating per dollar of investment. Similar to ROS, this ratio needs to be looked at compared to the industry as different industries have different requirements that can affect ROA. For example, companies in the airline and mining industries need expensive assets to operate so will have lower ROA’s compared to companies in the pharmaceutical or advertising industries.

Return On Common Stockholders ' Equity: measures profitability of owner investment by subtracting preferred dividend from net income and dividing by average common stockholder 's equity.

The debt ratio explains the amount of debt maintained by both respective companies, and represents the amount of debt used by the company to finance business operations and is

When compared with the industry, the times interest earned ratio of S&S Air of 6.36 times is between the industry lower quartile of 5.18 times and the median of 8.06

The Debt Ratio, projects the relationship between the total assets and total debts of the company. This ratio is used to measure the financial risk of the company. In order to measure the financial risk, we need to look at the amount of debt that the company has incurred due to the financing of operations. This is done by comparing the total debt to the total assets of the company, from there we derive a debt percentage. The total debt amount includes, current and non-current liabilities. Whilst, the total assets amount includes, current and non-current assets. The overall ratio is expressed as a percentage. This percentage indicates how much of debt is incurred by the company, when financing its operations. If the overall percentage is high, it implies that the company is at a financial risk as there is a relatively high proportion of debt.As potential investors would not want to in a company which has a high percentage of debts.Whilst a low overall percentage, the company is at a low financial risk and are handling their debts well. The

The Debt to Total Asset Ratio is a ratio that shows the financial risk of a company by

Overall regards to liquidity ratios, the higher the number the better; however, a too high also indicates that the firms were not using their resources to their full potential. Current ratio of 1.0 or greater shows that a company can pay its current liabilities with its current assets. JWN’s ratio increased from 2.06 in 2007 to 2.57 in 2010, and slightly decreased to 2.16 in 2011. JWN’s cash ratio increased significantly from 22% in 2007 to 80% in 2010. JWN has a cash ratio of 73% in 2011, which is useful to creditors when deciding how much debt they would be willing to extend to JWN. In addition, JWN also has moderate CFO ratio of 46%, indicating the companies’ ability to pay off their short term liabilities with their operating cash

Rate of Return on equity measures a corporation 's profitability by revealing how much profit a company generates with the money shareholders have invested. It indicates how efficiently the business uses its investment funds. For Tesco, Rate of Return on Shareholders’ Fund has increased from 13.85% in 2004 to 14.91% in 2009. This shows an improvement of 1.06% in five years period. When one examines the Sainsbury’s Rate of Return on Shareholders’ Fund, there is an increase from 7.76% to 8.36%. There is a 0.6% growth in the Rate of Return on Shareholders’ Fund. In comparison with Tesco, Sainsbury’s Rate of Return on Shareholders’ Fund is lower. Shareholders earned 13.85% from their investment (measured in book value

2015 p. 71). The two important debt ratios are debt ratio and times interest earned ratio. The debt ratio is measured by dividing total liabilities by total assets. Vanguard Group’s debt ratio is 53.3% which is better than industrial average, but it is getting worse compared to the previous year. Times interest earned ratio measures “firm’s ability to make a contractual interest payment.” (Gitman & Zutter, et al. 2015 p. 73). It is measured by divided by interest earned from earnings before interest and taxes. Vanguard Group’s times interest earned ratio is 5.53, which is acceptable. This ratio is better than the industrial average of 4 as well as it exhibits a significant progression than the previous

You can make use of three different ratios to evaluate company and measure its financial strength. Two of the ratios viz. debt and debt-equity ratios are very common measurements. The third one, capitalization ratio, gives a proper insight in evaluating the company’s capital structure.

This ratio is expressed in percentage. If the ratio is high it shows that the company is utilizing its assets in better way to generate its income. If the ratio is less it shows that the company is in difficult position to meet its debt. Formula to find the return on assets ratio is: - return on assets = net profit / total assets. Whereas net profit means the amount arriving after deducting all the expenses which includes taxes also. In addition to this he also explains about the profit margin ratio (PMR). PMR is the ratio which expresses the relationship between profit and sales. Formula used to find the PMR is: - Profit margin ratio = net profit/net

Current Ratio, also known as liquidity ratio and working capital ratio, shows the proportion of current assets of a business in relation to its current liabilities. ("Current Ratio | Formula | Example | Analysis | Industry Standards," n.d.) A ratio of 2 would indicate that current assets would cover current liabilities two times. In year 7, Competition Bikes had a ratio of 5.79. This reflects strength in the company with a strong position in current assets. In year 8, the ratio decreased slightly to 5.25 which is still well above the industry benchmark of 4.2 of from Two Wheel Racing.