In examining the strengths and weaknesses of Happy Hamburger, Co. it is extremely valuable to consider the appropriate financial ratios available. The ratios used are: current ratio, days sales outstanding, inventory turnover, fixed asset turnover, total asset turnover, return on sales, return on assets, return on equity and debt ratio. Also to be examined will be the effect on ratios that Happy Hamburger will experience as a result of a double increase in: sales, inventories, accounts receivable and common equity. These increases will have an impact on the financial ratios being used in this analysis. Ratios Current Ratio. The current ratio can indicate a company’s liquidity and is considered one of the most valuable ratios in analyzing …show more content…
This ratio compares the net sales of an organization with regard to its fixed assets. It quantifies the company’s operating performance by indicating the ability the organization has to generate net sales from fixed assets such as: property, plant and equipment. The higher the ratio, the more capable an organization is at utilizing its fixed asset investments to generate sales. In comparison to the industry average of 12.1, Happy Hamburger falls short before the increases at 5.49, but comes a bit closer to the industry average after the increases and has a score of 10.99. With regard to industry average, this could be considered a weakness for Happy Hamburger. Total Asset Turnover. The total asset turnover ratio is calculated using the organizations sales with regard to its total assets. It is indicative of an organizations efficiency and its ability to generate sales by using its total assets. A higher number is a more appealing ratio, here as it tells us the company is “generating more revenue per dollar of assets (Investopedia.com, 2016)”. Again, Happy Hamburger falls below the industry average of 3, coming in at 1.69 before the increases and 2.11, after. These numbers are not terrible but don’t meet the industry average and would be considered a …show more content…
The debt ratio is calculated using short term and long term debt relative to the total assets of an organization. The higher this figure is, the riskier a financial investment the organization is. The industry average has a debt ratio of 55%, a more promising figure than Happy Hamburger had before its increases, 68%. The debt ratio would have been considered a weakness for Happy Hamburger, but with the increased figures taken into consideration, this figure is a strength for Happy Hamburger at 39%, a more favorable figure than the industry average and indicating the organization is a less risky
Suppliers are mostly concerned with a company 's ability to pay on their liabilities. Therefore, the current ratio and the quick ratio are both looked at by suppliers. The current ratio takes a company’s current assets and divides that by the company’s current liabilities. This number is
When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to liquidate its assets if operations were discontinued, and debts needed to be collected. In 2005 Wendy's had $2,076,043 worth in total assets and $846,264 in total liabilities. When divided, Wendys has the lower ratio of the two competitors at 40%. This means that they would take losses of 40% if operations were shut down, and the cash received from valuable assets would still be sufficient to pay off the entire debt. It also means that 40% of Wendys assets are made through debt. McDonalds in 2005 had $12,545.3 (in millions) of total liabilities and $22,534.5 (in millions) of total assets. After doing the math, McDonalds ends up with a ratio of 56% which is higher than Wendys by sixteen percent. This means that there is more default on McDonalds liabilities, which can be a costly event from lenders perspective. McDonalds makes 56% of all its assets through debt. In reality, its not good to have a debt-to-assets ratio over 50%. Its also not good to have a debt-to-assets ratio that is too low because...
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
Stuff’ n Burger numbers shows that a proportionately large spending on A&P is still generating no operating income. It is in the red. This points out the difficulty and expense involved in developing new brand or products.
Financial ratios are "just a convenient way to summarize large quantities of financial data and to compare firms' performance" (Brealey & Myer & Marcus, 2003, p. 450). Financial ratios are very useful tools in order to determine the health of a company, help managers to make decision, and help to compare companies that belong to the same industry in order to know about their performance.
This passage should encourage us to never give up. Financial Measures According to Chipotle Mexican Grill, Inc.’s financial ratios, “inventory turnover ratio rose to 202.33, below company average. However, the average processing period stayed unaffected at 2 days, in the Sep. 30, 2015 quarter.” Within the services sector, there was only one business that accomplished a greater inventory turnover ratio.
By dividing net sales by net fixed assets, an investor can see if the company is using its fixed assets efficiently. Since fixed assets are often high price items, it is important that a company is using the fixed assets well; the higher the ratio, the better. Since we are lacking information on what type of industry this is, it is hard to put to much significance on the ratio. Since the ratio is similar, even a little higher, than the competitor, it could be safe to say that this is normal for the
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
High current ratio is a clear indication that company is able to meet its current liabilities and manages very well its liquidity position. However, quick ratio will provide a better view.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)
This bar graph is showing that the trend is sporadic from year to year. This ratio shows the company’s total sales that are available for financing and supporting the company’s ongoing operations. Large ratios are needed to show that the company is in a better place to develop than its rivals. Kraft Food Group has room to grow in this
The Quick Ratio shows that the company’s cash and cash equivalents are the highest t...
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
At the start of 2015 McDonald’s stated they wanted to increase their net profit between 5% - 7% over 2016 calendar year. The Gross Profit ratio from 2014 - 15 did not fluctuate from 66%, following this was the small increase in net profit by 1%. McDonald 's had fallen far from their overall goal of a 5% -7% increase. Yum Brands is now achieving higher net margin at its company stores than McDonald’s with their revenue skyrocketing in from 41,546,000,000 in 2014 and 42,692,000,000 in 2015 well ahead of McDonald’s.