FIN501 Module 4 SLP

FIN501 Module 4 SLP

Introduction

Lowe is a producer who has the sole purpose of promoting consumption of the consumer. Lowe and its quest for capital improvement are playing a major and vital role in the evolution of economic life. Lowe brings positive change to towns in the U.K. They increase competition between retailers, stimulating the economy, and they also bring more capital and tax revenue to at town, some of which desperately need a positive change.

Financial Performance

In the current situation of Lowe, ratio analysis possess a very important role in determining the past, present and future outlook of the company. Ratio analysis is the most extensively used form of financial analysis. In this section, ratio analysis is aimed at characterizing the firm in a few basic dimensions considered fundamental to assess the financial health of Lowe. We will compare the ratios of 2006 and 2007 in order to determine the financial health of Lowe

Profitability Ratios

Profitability ratios are the projection of how successfully the firm is managing its assets and debts. Actually, profitability ratios measure the ability of the firm to generate earnings or how successfully the firm has generated earnings over a period of time. Profitability ratios are the indicators of the success or failure of the firms' activities.

ROA = Net Income + Interest Expenses/Total Assets

ROA 2007 = (4,397,648+22,969) / 11,817,756

= 37.4%

ROA 2006 = (1,667,985 + 71,943) / 6,592,536

= 26.4%

The return on assets ratio shows that how effectively the assets of Lowe are working to generate profit. According to the situation of the above calculated figures, we can say that the return on assets has increased. This is a positive sign for the company as its earnings are increasing in accordance with the assets.

ROE = Net Income + Interest / Common Equity

ROE 2007 = (4,397,648+22,969) / 7,615,512

= 58%

ROE 2006 = (1,667,985 + 71,943) / 3,217,864

= 54%

Return on equity ratio is a comparison of the amount of earnings and the shareholders' equity. This ratio shows the investors that how much the company has earned in contrast to the amount of shareholder' equity. The trend in the return on equity is positive. This means that the earnings are increasing in comparison to the shareholders' equity.

Sales Margin = (Sales - Operating Expenses) / Sales

Sales Margin 2007 = (34,937,800 -9,293,962) / 34,937,800 = 73.4%

Sales Margin 2006 = (17,785,896 -5,162,044) / 17,785,896

= 70.9%

Liquidity Ratios

Liquidity ratios determine the firms' ability to pay back her debt in time. This is a major influencing factor in the performance of any firm. The basic premise of the liquidity ratios is to determine the liquidity of the firm. In this section, we will focus on the current ratio only as it is the main determinant of a firms' liquidity.

Current Ratio = current assets / current liabilities

CR 2007 = 10,883,862/4,151,203

= 2.62

CR 2006= 5,989,452/3,281,588

= 1.82

From the above figures, it is clear that the trend in the current ratio is increasing which means that Lowe is facing excess liquidity position in the current year ...