Company vs. Industry Financial Analysis

Essay by cupoblUniversity, Bachelor'sA, December 2006

download word file, 3 pages 5.0

Companies constantly evaluate their performance by comparing it with its industry competitors and with other successful businesses from other industries. To do that there are many ratios out there that makes the comparison much easier. Comparative ratio analysis helps to identify their company's strengths and weaknesses and evaluate its financial position. There are different ratios that are used and those are income, profitability, liquidity, working capital, long term analysis, coverage and leverage.

Riordan Manufacturing and Kudler Fine Foods analysis will show comparison to its industry current ratio, debt ratio and profit margin.

Current ratios consists of current assets which is cash on had and current liabilities which is short financial obligations such as accounts payable and notes payable. Riordan current ratio is 2.09 and its industry ratios is 2.04. Its current ratio is above industry average which means that Riordan is able to meet short term obligations or satisfy short term creditors.

Debt ratio measures a firm's total assets that are financed with creditors' funds. It includes all short term liabilities and long term borrowings. Riordan debt ratio is 86%. The ratio is interpreted to mean that Riordan creditors are financing 86% of the firms' total asset. This is much higher than the 64.40% industry average. This indicated that Riordan is using more debt to finance operation than the average firm in the industry. The company may have difficulties obtaining financing for further asset additions. If Riordan wants to restore its borrowing capacity it should take steps to increase its equity base.

Profitability ratios measure how effectively firm is generating profits on sale, total assets and stockholders investment. This also demonstrates how well its management is making investments and financing decisions. It consists of gross profit margin and net profit margin. Riordan gross profit margin is 17%. It shows that...