Well where to start… I found calculating my firms ratios to be quite straight forward however was confused by some of the amounts I ended up with. Large of negative percentages caused me to doubt that I had calculated correctly however upon discussion with others and observing other students company’s ratios I found that other company’s did have similar ratios to mine. Therefore hopefully this means my ratio calculations are at least on the correct path. Majority of my firms ratios are all positive apart from the 2016 year where Gud seemed to have a lot more negative outcomes, I believe this is due to the acquisition of Brown and Watson pty in July 2015.
Below is my step 8 discussion on what i feel my firms ratios express regarding my company.
Ratios Analysis and Economic Profit
I have struggled to fully understand what my firm’s ratio’s mean or tell me about my firm’s financial position. I am worried that if I have miscalculated my ratios that I do not have a clear or correct view to base my assumptions on however will attempt to accurately discuss what I feel these ratios mean for my firm.
Gud net profit margin for 2016 is showing a negative percentage which would mean that the firm has used more revenue than it has made profit; this could be due to the purchase of Brown and Watson Pty after the 2015 financial year. For 2015, 2014 and 2013 Gud has maintained a positive net profit margin. Gud also received a negative percentage for 2016 for its return on assets which is likely due to the large amount of capital Gud invested in acquiring Brown and Watson which it has yet to make back its expenses. 2015, 2014 and 2013 all have positive return on assets percentages.
The asset turnover ratio shows how many sales are created from each dollar of a firm’s assets. My firms ratio’s show that GUD had a higher ratio for asset turnover in 2014 and 2013 and that the ratio has dropped in the coming years therefore meaning that GUD is generating less revenue per dollar of assets then it has in previous years. Guds current ratio for 2016, 2015, 2014 and 2013 are all very similar ranging from 2.01-2.27, this would indicate to me that GUD is in a good financial position and would be able to pay any financial obligations it may face.
Guds debt/equity ratio would show that in 2016 and 2014 Gud had higher debt then its equity as both percentages are very high. Guds equity ratio for all four years is quite similar falling between 44.4% and 69.1%, these percentages show me that GUD has quite an equal share it its company’s ownership along with its shareholders and equity providers. By having high equity ratio it shows that GUD has a lot of shareholders investing in the company and could encourage further shareholders to invest as well.
I had trouble understanding what my firms Market ratios meant for its share holders, earnings per share was negative for 2016 but positive for the previous years, with its dividends per share ratio being negative for GUD in all 4 years recorded. The price earnings ratio was
negative for 2016 but positive for 2015, 2014 and 2013, based on these ratios I assume that having the negative percentages is an indication of some issues in the share market.
When looking at my firm’s economic profit (RNOA) at first I would notice that the year 2016 has a negative economic profit amount. On first look this would lead me to believe that the firm is not doing as well as it may seem however I believe this calculation may be negative for 2016 due to the purchase of Brown and Watson Pty in July 2015 with costs carrying over into the 2016 financial year.
Overall I feel Guds ratios have shown that they are a stable company with a lot of investors supporting them. The ratio also shows Gud are able to take risks and invest large capital in new investments for future gains and profit.