1. Return on Assets (ROA)
ROA describes to financial managers what earnings were generated from the company investing capital. Typically the higher the ROA number, the better, because it means the company is earning more money with less investment. Lastly a ROA higher than 5% is seen as a good investment by investors. Pepsi and Coca Cola would both seen as good investments.
Return on Assets = 100 x Net Income + Avg. Total Assets
= 100 x 8,626 + 88,114.5 = .0978954
= ($ 6,787 ÷ $ 76,058) = 0.089 8.9%
We can make the assumption that both Pepsi and Coca Cola would be investor friendly investments. 2. Profit Margin
The profit margin measures how much out of every dollar of sales a company actually keeps in earnings.
Profit Margin = Net Income / Sales
8626/46854 = 0.184104 = 18%
3. Asset Turnover
Asset turnover measures how efficiently a company uses its total assets to generate revenues. We can conclude from the ration that for every dollar generated by Coca Cola generated .53 cents in revenue. Due to the fact that the outcome is >1, it can be reasoned that Coca-Cola has a low asset turnover
Asset Turnover = Sales / Average Total Assets
= 46,854/88114.5 = 0.531740
4. Return on equity (ROE)
The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. the ROE ratio is an important measure of a company's earnings performance. The ROE tells common shareholders how effectively their money is being employed n general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality.
ROE = Net Income / Average Shareholders Equity
= 8626/ 32981= .2615
The equity multiplier is a measurement of a company’s financial leverage.
The equity multiplier gives investors an insight into what financing methods a company may be able to use to finance the purchase of new assets. It's also an indicator of potential threats a company may face from economic conditions that affect the debt-equity mix.
Equity Multiplier = Total Assets/ Total Stockholders Equity
= 90,055/33,440 = 2.693032
The current ratio measures a company’s current assets against its current liabilities.
A high ratio indicates a high level of liquidity and less chance of a cash squeeze.
Current Ratio = Current Assets /Current Liabilities
Coca Cola = 31304 / 27811 = 1.125
7. Debt to Equity Ratio
The debt-to-equity ratio measures the amount of debt capital a firm uses compared to the amount of equity capital it uses. A ratio of 1.00x indicates that the firm uses the same amount of debt as equity and means that creditors have claim to all assets, leaving nothing for shareholders in the event of a theoretical liquidation.
Debt to Equity Ratio = Total Liabilities / Stockholders Equity
= 27,811/33,440 = 1.71
Coca Cola had a debt to equity ratio of .83 showing us that they have more debt from shareholders than from financing.
8. Average Collection Period
The average collection period approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.
Average Collection Period = 365/Receivables Turnover
Days = Total amount of days in period
AR = Average amount of accounts receivables
Credit Sales = Total amount of net credit sales during period
Due to the size of transactions, most businesses allow customers to purchase goods or services via credit, but one of the problems with extending credit is not knowing when the customer will make cash payments.