Comparative analysis: Analysing the ratio of one with the other in the industry provides for better understanding about the performance of the company in market. An investor has to make a comparative analysis before making any investment decision. In this case, the direct competitor of Exxon is Chevron, ratios is being computed for the recent four quarters which is being used for comparative analysis. Current ratio: This is an essential ratio which discloses about the liquidity position of a company. It is determined by dividing the current assets and current liabilities of the company. In this case, the Exxon’s current ratio is decreasing which indicates about the decreasing liquidity of the company. Current ratio of Chevron is far ahead than Exxon. This ratio is fluctuating for Chevron, but the fluctuation is minor and not drastic. Exxon ratios are fluctuating within 1.0 to 0.84, whereas Chevron ratio is always greater than 1.50. This clearly indicates that Chevron is in better position in meeting its obligations when compared to Exxon. If this decline continues for Exxon then there are chances where the company cannot meet up its short-term obligations and lead to financial distress. Quick ratio: It is another indicator of liquidity which is determined by subtracting inventory from the current assets and dividing by current liabilities. Inventories are less liquid asset, so it is eliminated in determining this ratio. This ratio is already very less and every quarter it is decreasing which indicates about the poor financial health of the company. But in case of Chevron this ratio is far ahead and fluctuates between 1.35 to 1.46, whereas Exxon values are fluctuating within the range of 0.79 and 0.61. Chevron liquidity positi... ... middle of paper ... ...disclosing positive signal to the investor. In this case, the profitability, turnover and return to the investors are less and this is the industrial trend. In this situation, an investor has to look into the liquidity ratio and into the debt ratio. When the profit earning capacity of the company is lesser in the industry, those company should not prefer to have higher debt as this will drain their entire liquidity and will add more pressure to the company. This will increase the chances of bankruptcy and financial distress costs too. In this regard Exxon has very poor liquidity and higher debt which is adding more risk on investment. In this case, Chevron will be preferred over Exxon because, Chevron provides for similar return to investors but at lower risk, where as risk is higher in Exxon with lower return. Thus, Exxon should not be chosen for making investment.
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
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.
Current Ratio is computed by dividing the Current Assets of a company by its Current Liabilities. The ratio is considered as a test of liquidity for a company.
It is important for analysts to know that when computing financial ratios, and when doing other financial statement analysis, the financial statement should reflect the accounting principles, and this should be kept in mind. This simply means that assets are generally not reported at their current value. It is also most likely that many brand names and unique product lines will not be included among the assets reported on the balance sheet, even though they may be the most valuable of all the items owned by a company. Classification of Financial Ratio Analysis Financial Ratio Analysis can be classified into two: Classification by use Classification by source Classification by Use Under the classification by use, financial ratio could be classified into various types based on their uses: Liquidity Analysis Ratio: The liquidity financial ratio can be used for three financial operations, which are: Current Ratio: (current Assets )/(Current Liabilities)
There are number of ratios that can help you to assess how well a company is performing and if it is worthwhile to invest in its stock. Here are some of them:
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are 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 use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.
Financial benchmarking is the process of “running a financial analysis [report] and making a comparison of the results [to] assess a company’s overall competitiveness, efficiency and productivity” (Debitoor, 2018). These analyses are often altered between ratio and financial trend. Ratio analysis or also known as financial ratio analysis “is a quantitative analysis of information contained in a company’s financial statements [and it] is used to evaluate various aspects of a company operating and financial performance such as its efficiency, liquidity, profitability and solvency” (Momoh, 2017). Financial trend analysis “[are] often used to make projections and assessments of [an organization] financial health … Analysts [typically]examine the past performance of their company, along with current financial conditions, to determine how their company will perform in the future” (Lewis, 2011).
I have leant that ratio analysis offers better insight of a company’s financial position on the short-term and long-term basis. However, I would recommend that investor advice should be based on ratio analysis that considers ratios from several years. This will ensure that the investor is making an informed decision based on the company’s financial ratio performance trend.
Vital to any ratio analysis are the steps of gathering financial data and selecting and calculating relevant ratios. This assignment provides you with an opportunity to do just that.
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.
Ratio analysis is an efficient tool which has been used for years by bankers, financial institutes and investors to measure the financial performance of firms and organizations. 4.1.1. Current Ratio Figure 1: Current Ratio Source: IBIS World 2017, Bega Cheese Ltd Financial Report. Liquidity or current ratio measures the company capability of a company to pay its short-term obligations. As stated in table 1, the current ratio for Bega cheese Ltd was stable between the year Y2013 and Y2016
Liquidity ratio often called working capital ratio is the ratio used to measure how liquid a company by comparing all components in current assets and current liabilities components. There are two assessments to measure this ratio, as follows:
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. Other hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e, current assets double the current liabilities is considered to be satisfactory.
In order to evaluate the financial ratios, this document uses the following analyses to assess the financial statements of the company:
For this report, the publicly-listed company that will be featured for financial analysis in order to aid investment decisions is the ExxonMobil (XOM). Using the calculation of horizontal analysis and financial ratios, the financial positioning and stability of the business will be probed at, including its competitiveness, favorable and unfavorable circumstances, liquidity and solvency problems, corporate issues / challenges, and positive and negative terms of investment. Upon thorough analysis of the relative factors, recommendations will be discussed, especially from the standpoint and favorability of potential investors of the business.