Question

Finance and Operation: Think of a specific business you find interesting, i.e. Apple, UTC, Southwest Airline, etc. 2. Search the web for that business" "Financial Statement" (You will find many fits for the data) 3. Select the "http://www.moringstar.com/" site offering your company's financial statement. 4. You will now see a number of financial ratio for your company. Below is an example for Apple http://financials.moringstar.com/ratio/r.html? 5. Now define the following ratios, note the ratio for your business, and explain what the ratio means for the business moving a. Return on Assets b. Return on Equity c. Return on Capital d. Gross Margin e. SG& A Margin f. Current Ratio g. Quick Ratio h. Total Debt/Equity I. Total Revenue j. Gross Profit

AnonymousCan I get something new that isn't already post on this assignment? Thank You

Answer 1

The company that I am interested in is General Motors Co (GM).

a. Return on Assets (RoA) is a profitability ratio that measures the ability to produce net income by total assets during a period. RoA = Net income/average total assets.

RoA for GM for the financial year 2017 was -1.79%. This was due to the fact that the company earned a net loss for that period. Going ahead the company should strive to improve this ratio and keep it positive.

b. Return on Equity (RoE) is a profitability ratio that measures the ability to produce net income by total equity during a period. RoE = Net income/Shareholder’s equity.

RoE for GM for the financial year 2017 was -9.84%. This was due to the net loss generated by GM in 2017. Going forward the company needs to improve its RoE and keep it in the positive zone.

c. Return on Capital is a profitability ratio that measures how efficiently a company is able to use its capital and generate profits from it. Return on Capital = Net operating profit/employed capital.

Return on Capital for GM for the financial year 2017 stood at -3.01%. Going forward the company needs to improve this ratio and keep it in the positive zone.

d. Gross margin is a profitability ratio that measures gross margin of a business to its net sales. Gross margin ratio = gross margin/net sales. Gross margin = sales – cost of goods sold.

Gross margin for GM for 2017 was USD 21.10 million and its gross margin ratio was 21%. The company should improve its margin going forward by keeping a check on the cost of goods sold.

e. SG&A margin is the ratio that is determined by dividing the SG&A expenses by a company’s net sales. The lower this ratio the better it is for the company.

SG&A margin for GM for 2017 was 6.58%. The company should, going forward, look to reduce its SG&A expenses so as to increase its profitability margins.

f. Current ratio is a liquidity ratio that measures a company’s ability to meet its obligations in the short run. Current ratio = current assets/current liabilities.

GM’s current ratio for 2017 was 0.89. This does not indicate a good liquidity position for the company as its current liabilities exceeds its current assets. Going forward the company should strive to keep the ratio well above 1.

g. Quick ratio is another liquidity ratio, but a more stringent measure than the current ratio. Quick ratio = (Current assets – inventories)/current liabilities

Quick ratio for GM for 2017 was 0.68. The company should look to increase more liquid assets like cash, short term investments etc in its books.

h. Total debt/equity is a leverage ratio which shows the relative contribution of creditors and owners. Debt/equity ratio = debt/equity.

The ratio for GM for 2017 stood at 1.92 and this means that the company is highly leveraged. Its debt is almost twice the amount of its equity. The company, going forward, should reduce its debt levels so as to make its balance sheets leaner.

i. Total revenue is the total sales of GM from the sale of its cars and spare parts. It is the top-line for the company. For 2017 the company’s total revenue stood at $145,588 million. The company should strive to increase its revenue in healthy percentage digits on a sustainable basis.

j. Gross profit is a profitability metric that shows the amount of profit from sales after deducting the costs of goods sold. Gross profit for GM for 2017 was $30,719 million. The company should in future strive to earn more gross profits per dollar of sales.