Project #88851 - MBA, finance

 

Please spend a few paragraphs telling why your ratios make sense for these two companies. 

Not all ratios make sense for companies.  For example, Southwest sells flights to people who must pay in advance.  To get low fares, they must pay at least 2 weeks in advance. So Southwest would have low receivables and the Current Ratio may not be a valid ratio for your comparison.

The ROE or Return on Equity is very important.  Please be careful to use total shareholder's equity, not common stock.  Normal answers range from -5% to + 30%, not 44,432%

The market ratios can be obtained from Yahoo Finance, looking at key statistics.  For the most part, the 10-K does not contain current stock price information.  It is OK to look at the last 10-K for financial statements and current Yahoo statistics for P/E, Market to Book, EPS, total market cap and alike.

Please spend much of your time telling how the ratios were calculated and especially, what the answers mean for management.  Please tell us much more than "C is winner."

Unlike Professor Livingstone, I like the DuPont analysis in the modified DuPont formula.  Briefly it is ROE (Net Income/ Total Common Equity) =

Profit margin (Net Income / Sales or Revenue0  x

TATO, Total Asset Turn Over (Total Assets /  Sales or Revenues) x

Equity Multiplier (Total Assets / Total Equity)

The above are 4 ratios that tell a lot about strategy.  Is the company a low price competitor or does it compete on other things ?- Profit Margin

Does it have high turnover or is it focused on other elements of the marketing mix?  -  TATO

Is it high debt and high risk?  The closer the Equity Multiplier is to 1, the  less debt.

And how does it do for the owners ROE.

I should note that there are 2 ways for companies to increase the stock price and raise the Market to Book ratio.  One is with great financial results.  A second is to buy company stock.  That reduces the total equity on the books.  Many companies are buying their own stock and limiting capital investments.  This is a sign of a poor economy.

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Due By (Pacific Time) 10/25/2015 08:00 pm
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