Individual Assignment Example | Topics and Well Written Essays - 2500 words

Individual - Assignment Example Comparative ratio analysis2 is effective if the financial statements of the organizations being assessed are of the same financial period. Financial period disparity may distort the effectiveness of ratio analysis and may therefore lead to unreliable conclusions. Therefore, I will compare the performance of these three organizations using financial statements based on averages for the last three years, 2011 to 2013. These financial statements are provided in the appendices. The primary concern of every firm is to increase its profitability, as most investors will first look at the profits in evaluating the performance of that firm. Profitability ratios measure the operating success of a company for a given financial period. When the profit figure is expressed as a percentage of sales or capital employed, these ratios can be compared with those of previous years, or those from companies in the same industry. The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. The net profit margin measures profitability after consideration of all expenses including taxes, interest, and depreciation. Here the higher NPM indicates higher profitability of the firm. The calculation is:  Net Income/Net Sales = _____%. The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. The calculation is:  Net Income/Stockholders Equity  = _____%. Financial leverage ratios assess how much financial risk the company has taken on and measure the company’s ability to survive over a long period3. A company that has borrowed money obviously has a commitment to pay future