Ratio analysis

Essay by hrbmiracleA-, May 2004

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To find out the better solution to buy the bookshop, Fancy Folios Pty Ltd or the coffee shop, Cup Hand Pty Ltd, we make a considerate selection by the whole process: gathering the right information, analyzing the ratios extensively, evaluating the alternatives and finally we determine to invest in Fancy Folios Pty Ltd. Now we would like to reveal the particular process in two steps.

Firstly, we analyze the present and likely future positions under the macro and task environmental analysis. They can be deduced by the internal situations analysis, namely ratio analysis. What we can need is set in the major assignment part A. At the same time, we have known the relevant expenses, dividend information for the two businesses. Secondly, we analyze the investing objective and the likelihood of achieving it, evaluate the two choices and opt ultimately after the study of all kinds of ratios real meanings, classification of the data and interpretation in the industry views.

Whatever we consider the advantages of profitability, liquidity or financial stability, Fancy Folios Pty Ltd exceed Cup Hand Pty Ltd. What we can advice for Jayne Jones is investing in Fancy Folios Pty Ltd! The deductions is showed as below:

Profitability Interpretation

Profitability Summary

2001 2002


Folios Pty

Ltd Cup

Hands Pty Ltd Fancy

Folios Pty

td Cup

Hands Pty


Rate of return on total asset 50.6 % 45.5 % 53.8 % 41.0 %

Rate of return on

Shareholders' equity 49.1 % 42.6 % 47.7 % 39.0 %

Profit margin 9.1 % 8.9 % 8.8 % 8.9 %

Gross profit margin 33.3 % 61.5 % 31.7 % 61.5 %

Earnings per share 1.06 C 0.74 C 1.21 C 0.75 C

Price-earnings ratio 94.1 % 136 % 82.5 % 133 %

Earnings yield 106.3 % 73.8 % 121.3...