| RATIO ANALYSIS |
| Note: Please change the column names based on your industry and your selected companies. |
| RATIOS | Consumer Goods/Discretionary | Procter & Gamble (P&G) | Unilever (UN) | ANALYSIS |
| Profitability Ratios (%) |
| Gross Margin | 54.79 | 49.52 | 43.1 | Indicates that 49.5% of P&G's sales dollars are avaliable for profits and expenses after the cost of merchandise is deducted. Compared to the industry's 54.79%, P&G is slighty less efficient which means that they are competitve to others in the industry. UN 43% ratio indicates that it has slightly less sales dollars for its expenses. |
| EBITD Margin | 13.86 | 25.35 | 17.32 |
| Operating Margin | 14.73 | 20.23 | 16.21 |
| Pretax Margin | 15.09 | 20.21 | 15.18 |
| Effective Tax Rate | 25.83 | 20.07 | 20.45 |
| Financial Strength |
| Quick Ratio | 1.06 | 0.62 | 0.4 | In this ratio inventory, supplies, and prepaid expenses are excluded. 0.62% of P&G's assests can be turned into cash to pay off short-term liabilities. With P&G's massive size of inventory it can be difficult to quickly turn inventory into cash. UN can turn its assets into cash at a slightly lower rate of 0.4%. Compared to others in the industry P&G is doing well because of it size, but they would not be able to pay all of its liabilities if they were due immediately. |
| Current Ratio | 1.42 | 0.8 | 0.73 | Typically, creditors and suppliers perfer a ratio of 1.0 or more. P&G is slightly higher than its competitor UN meaning that P&G can repay there financial obligations at a faster rate than UN. P&G ratio is lower than the industries benchmark for the fiscal year. This indicates the P&G and UN can pay off finanical obligations almost at the same rate. The industry ratio surpassed 1.0 at 1.42, but many times the above ratio is not good for for the company. P&G's 0.8% ratio indicates that it has working capital. |
| LT Debt to Equity | 10.59 | 39.78 | 26.89 |
| Total Debt to Equity | 17.22 | 59.9 | 1.64 |
| Interest Coverage | 105.16 | 51.5 | 9.61 |
| Valuation Ratios |
| P/E Ratio | 79.57 | 22.87 | 22.24 |
| Price to Sales (P/S) | 9.41 | 3.45 | 2.54 |
| Price to Book (P/B) | 4.67 | 4.52 | 11.14 |
| Price to Tangible Book | 1.8 | -7.2 | -6.35 |
| Price to Cash Flow | 69.29 | 17.35 | 17.73 |
| Price to Free Cash Flow | 9.62 | 11.15 | 5.63 |
| Management Effectiveness (%) |
| Return On Assets | 8.59 | 8.95 | 10.37 | P&G 7.95 ratio indicates that they earn less on each dollar as it turns over its assets more quickly, but they generate more sales per dollar of asset compared to UN and the industry standard. |
| Return On Investment | 12.52 | 11.97 | 19.03 |
| Return On Equity | 18.44 | 19.84 | 40.38 |
| Dividends |
| Dividend Yield | 1.11 | 3.09 | 3.18 |
| Payout Ratio | 41.8 | 67.67 | 1.53 |
| Efficiency |
| Revenue/Employee | 19,173,414 | 726,837.00 | 333,634 |
| Net Income/Employee | 2,132,362 | 117,413.00 | 37,596 |
| Receivable Turnover | 6.98 | 13.4 | 15.87 | P&G collected on their receivable account almost twice as fast as the others in the industry. This allowed P&G to collect cash allowing them to operate better. P&G and UN need to monitor the accounts because if it gets too high it can indicate credit is too tight, which can cause a loss to good customer sales. |
| Inventory Turnover | 2.91 | 6.62 | 7.41 | P&G's 6.62% ratio indicates they sold their inventory almost 2 times faster than others in the industry. UN produced a slightly higher 7.4% ratio selling off their inventory slightly higher. |
| Asset Turnover | 0.83 | 0.55 | 0.92 |
| Summary |
| What is ratio analysis? Briefly explain in this space, and reference your resources: For a business to understand their financial position there are many tools that can be used. The many documents and financial statements are important and if the data is not interpreted correctly a business can develop ineffective financial reporting, which can later lead to the close of the business, bad or unethical practices. Financial ratio analysis uses historical financial statements to quantify data that will help give investors a feel for a firm’s attractiveness based on factors such as its competitive position, financial strength and profitability. Financial ratios are one tool that can be applied to assist with quantify the operating and financial conditions of a business (Bajkowski, 1999). Ratios play a vital role in financial analysis. A ratio expresses a mathematical relationship between two items (Bajkowski, 1999). In this case, activity can be measured between business competitors, the industry, market, economy or just itself. For example, Starbucks can measure its financial conditions against itself from past years data, or against some of its competitors like McDonalds McCafé and Dunkin’ Donuts. There are three broad categories of financial ratios, which are liquidity, solvency, and profitability. The data gathered and analyzed from this tool can display a trend to help business’s make important decisions on where they want to take the company financially. Liquidity ratios examine how easily the firm could meet its short-term obligations, while financial risk ratios examine a company’s ability to meet all liability obligations and the impact of these liabilities on the balance structure (Bajkowski, 1999). Solvency ratio is the ability of a company to settle its liabilities by available cash. Profitability ratio is an analysis of a business to generate earnings or profits. Reference: Bajkowski, John. (1999). Financial Ratio Analysis: Putting the Numbers to Work. AAII Journal. Retrieved from https://www.aaii.com/journal/article/financial-ratio-analysis-putting-the-numbers-to-work |
| Referring to your ratio analysis above, in which company would you be willing to invest, and why? Anytime someone is willing to invest they have an understanding that they are taking a risk. |
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MBA520ModuleTwoActivityWK2.xlsx
