FINANCIAL ANALYSIS

Financial Analysis



Introduction1

Comparing Profitability Ratios1

Comparing Working Capital Management3

Comparing Investment Ratios4

Ratios That Effect Investors Behavior5

Conclusion5

References7

Financial Analysis

Introduction

This report basically deals with analyzing financial management in the given organizations. Three organizations which are named as A, B and C are dealing in food retail industry. Financial ratios are provided as for giving overview of financial conditions of each organization. This report will interpret the given financial ratio (McLaney & Atrill, 2012, p. 221).

Financial ratios are one of the best ways to analyze the information shared by the organization and taking the correct action for making the investments more profitable (Bert et al, 2001). The report will briefly comment on the profitability of the organizations. It will further deal with that how the working capital is deployed in the organization and managed and how it is effecting on the profitability of the organization. The last part will be dealing with the investment ratios and this part will lead the reader understand that which organization out of the three is a better place to invest their precious investments. The best organization will be selected and the recommendations will be made for making a better use of the investments.

Comparing Profitability Ratios

In the table below profitability ratios of company A, B and C are illustrated:

Profitability Ratios

Company A

Company B

Company C

Gross profit margin

15%

22%

40%

Net profit Margin

9%

10%

12%

Return on capital employed

15%

13%

16%

Return on shareholders' funds

20%

13%

12%

Earnings per share

15p

20p

25p

Gross profit margin shows the value added by the market on non-manufacturing activities of any organization. This ratio depends on a large scale on the business in which the company is dealing. At the time of comparing gross profit margins it is substantially essential that the companies must belong to the same industry. This ratio play almost no role in an organization where there is no COGS and this is mostly the case in service providing companies. This ratio tells the will of the customer to pay for the particular product. A higher gross profit margin is desirable for the organization's profitability (news.morningstar.com).

The gross profit margin of company A, B and C are 15%, 22% and 40% respectively. All the three companies are dealing in the same industry so there gross profit margins are comparable. Company C has the highest position with respect to this particular ratio. This means that products of this company have edge on the other two, when it comes on the willingness to but the company C's products. This can also be due to some not financial reasons like good customer service and persuasiveness.

Net profit margin is another measure for determining the profitability of the business. It is a more narrow way to judge the profitability of the operations. Here again company C is showing the highest and the most desirable ratio out of the three. A very essential thing to take account at this level is that the difference between net profit margin and gross profit margin is a very serious issue and this issue is most serious in company ...