Ratio analysis Essay Example | Topics and Well Written Essays - 2500 words

Ratio analytic thinking - Essay ExampleThe agent is used to compare the performance of the starchy within itself in terms of aspects such as melio balancen in management skills and finance handling. The latter is used to compare the performance of the firm within its fabrication of ope limit. Such comparisons will consider fundamental aspects of operations like profitability. In profitability, an increase or reducing is established and the causes of each including what can be done to stabilize profitability and grow it further. The liquidity of the firm is also quite fundamental as this would enable management know how to plan operations and sources of financing. Therefore, ratio analysis is used in the determination of trends as it strives to expose the strengths and weaknesses of the guild. Ratios can be either booming or unfavorable depending on whether the increase or decrease is in the desired direction (Dess 2012). For our analysis of Apple Incorporations financial sta tement of the year 2012 compared to that of the year 2011, we will categorize ratios into the pursual - put onability Ratios Liquidity ratios Efficiency Ratios and Capital structure ratios. Profitability Ratios They measure the ability of the company to move over profits from their asset investments. Such ratios include- Gross Profit margin, which is the profit before expenses generated by sales as a percentage. There is the Net Profit margin which are the earnings before depreciation and task generated by sales Then there is the Return on Equity(ROE)/Net Worth/ Shareholders funds/ Investments(ROI), this is the ratio of the earnings after tax plus preference dividends contributed by share capital and reserves. The fourth ration in this category is the Return on total assets (ROTA) which indicates how much the laid and Current Assets of a company contributes to the Earnings before Interest and Tax (EBIT). Return on Capital Employed is the next, it indicates how equity and Fixed interest capital contributes to the EBIT, and finally we have the operational Expenses Ratio indicating the percentage of sales consumed by the run expenses. An increase in these ratios from the previous period is considered favorable while a decrease in the stand up ratio is considered favorable. The ratios as shown by the financial data by Apple incorporation between the geezerhood 2011 and 2012 financial statements are as shown in the table below. RATIO FORMULA course 2012($ in Millions) YEAR 2011($ in Millions) 1. Gross Profit Margin = (Gross Profit/Sales)* nose candy (66,662/156,508)*100 = 43.87% (43,818/108,249)*100 = 40.48% 2. Net Profit Margin =(EBIT/Sales)*100 (55,241/156,508)*100 = 35.30% (34,790/108,249)*100 = 32.14% 3. ROE/ROI =(EAT+ Pref. dividends/Owners Equity)*100 (41,733/118,210)*100 = 35.30% (25,922/76,615)*100 = 33.83% 4. ROTA =(EBIT/Total Assets)*100 (55,241/176,064)*100 = 31.38% (34,790/116,371)*100 = 29.90% 5. ROCE =(EBIT/Total Capital Employed)*100 (55,24 1/118,210)*100 = 46.73% (34,790/76,615)*100 = 45.41% 6. Operating Expenses Ratio =(Operating Expenses/Sales)*100 (13,421/156,508)*100 = 80.58% (10,028/108,249)*100 = 9.26% As indicated by the profitability ratios, there was a customary increase in profitability of Apple Inc between the year 2011 and 2012. The gross profit margin shows a rise from 40.48% in 2011 to 43.87% in 2012. Such an increase was because of the increase in sales from 108,249 in 2011 to 156,508 in 2012. An increase of the net profit margin from 32.14% to 35.3% is because of the i