Compare the following ratio summaries of the two companies. Summarize the ratio’
ID: 2803876 • Letter: C
Question
Compare the following ratio summaries of the two companies. Summarize the ratio’s trend analysis of the two company’s and comment on similarities and differences. Comment on financial statement account fluctuations as compared to the other company.
Company "A" NPM as of Oct. 1, 2017, was 12.89 percent, which was a slight decrease over the previous year of 13.22 percent. The next ratio is the Gross Profit Percentage Ratio. Company "A" Gross Profit Percentage as of Oct. 1, 2017, was at 59.63 percent, which was a decrease over the previous year of 60.07 percent. The next ratio is the Return on Equity. Company "A" ROE as of Oct. 1,2017 was 50.61 percent, which was an increase over the previous year of 48.16 percent. There was a 2.45 percent increase over the previous year. Their EPS as of Oct. 1, 2017 was $1.97, which was an increase over the previous year of $1.90. Their short-term investments increased from 134.4 in 2016, to 228.6 in 2017, which was a 70.09 percent increase. Their long-term investments decreased from 1141.7 in 2016, to 542.3 in 2017, which was a 52.50 decrease from the previous year. There was an increase in their COGS from 16.06 in 2016, to 17.09 in 2017. Their receivables turnover ratio for 2017 was 27.31, which means that A/R was collected about 27.31/year. The days to collect of 13.36.
Company "B" financial statements their net profit margin has improved from previous year as compared to gross profit ratio. EPS has increased from previous year significantly. Liquidity ratios have been improved in 2017 than in 2016. Company "B" receivables turnover improved/ increased from 2016 to 2017. The collection period was also shorter in 2017 than in 2016. Current ratio has been improved as well. Debt assets ratio is closer to 0. Company "B" had a higher inventory turnover and less days of inventory in 2017 than in 2016. Company "B" return of equity deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.
Company "B": Ratio
Unit
2017
2016
Tests of Profitability:
Net Profit Margin
%
6.61
5.23
Gross Profit Percentage
%
20.75
21.85
Return on Equity
%
10.55
61.4
Earnings per Share
1
0.17
Tests of Liquidity:
Receivables Turnover
5.14
4.34
Days to Collect
71.04
84.02
Inventory Turnover
3.91
3.67
Days to Sell
93.35
99.38
Current Ratio
1.7
1.45
Tests of Solvency:
Debt-to-Assets
%
77.95
79.09
Company "B": Ratio
Unit
2017
2016
Tests of Profitability:
Net Profit Margin
%
6.61
5.23
Gross Profit Percentage
%
20.75
21.85
Return on Equity
%
10.55
61.4
Earnings per Share
1
0.17
Tests of Liquidity:
Receivables Turnover
5.14
4.34
Days to Collect
71.04
84.02
Inventory Turnover
3.91
3.67
Days to Sell
93.35
99.38
Current Ratio
1.7
1.45
Tests of Solvency:
Debt-to-Assets
%
77.95
79.09
Explanation / Answer
Company A 2017 2016 Analysis & Conclusions Tests of Profitability: Net Profit Margin 12.89 13.22 Slight decrease over 2016 figure,COGS& operating expenses have increased in 2017 Gross Profit Percentage 59.63 60.07 Decreased gross profit %, COGS has increased Return on Equity 50.61 48.16 Income to equity shows a slight increase Earnings per Share 1.97 1.9 Per share earnings remains almost constant Short-term investments 228.6 134.4 More than 50% increase in short-term investments Long-term investments 542.3 1141.7 Heavy decrease in long-term investments COGS 17.09 16.06 Slight increase in COGS% Receivables turnover ratio 27.31 Receivables collected 27 times in a year.ie. Once in365/27= 13 days Company "B": Ratio 2017 2016 Tests of Profitability: Net Profit Margin 6.61 5.23 Slight increase over 2016 figure,operating expenses have decreased in 2017, despite decrease in gross profit % Gross Profit Percentage 20.75 21.85 Decreased gross profit % Return on Equity 10.55 61.4 Income to equity shows a steep decline Earnings per Share 1 0.17 Per share earnings has inceased almost 6 times Tests of Liquidity: Receivables Turnover 5.14 4.34 No.of times Receivables are collected has improved slightly Days to Collect 71.04 84.02 Receivables are collected once in 71 days in 2017 as against 84 days in 2016 Inventory Turnover 3.91 3.67 No.of times inventory is converted to sales remains almost constant,with a very slight improvement in 2017 Days to Sell 93.35 99.38 Inventory is converted to sales once in 93 days in 2017 as against 99 days in 2016 Current Ratio 1.7 1.45 Current ratio is below the normal of 2:1 in both the years , but has improved in 2017 Tests of Solvency: Debt-to-Assets 77.95 79.09 Financing of assets with debt remains almost at the same level.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.