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Essay / Research Paper Abstract
This 4 page paper uses an income statement and balance sheet provided by the student to assess a potential investment, demonstrating how to calculate and use horizontal and vertical ratio dealing with profitability, liquidity and efficiency. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEcaseass1.rtf
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Unformatted sample text from the term paper:
profitability, liquidity and efficiency. The primary measure for shareholders will be the profit. Profitable firms will have greater dividend potential and will also have a greater market growth potential
as growth is valued by investors. There are different profit measures. The first is the gross profit margin. The gross margin is expressed as a percentage. This is the
level of revenue that remains when all of the direct costs for producing the goods or services are deducted form the revenue. This indicates the level at which direct costs
account take up revenue. Table 1 Gross profit margin Gross Profit Margin 2009 2008 2007 Revenue 42,905,000 32,479,000 24,006,000 Cost of goods sold 25,683,000 21,334,000 15,852,000 Gross Profit
Margin 17,222,000 11,145,000 8,154,000 Gross profit margin 40.14% 34.31% 33.97% Here the firm is demonstrating a significant improvement, both in the level of the gross profit, which as we
ca see is increasing each year, 2009 was an increase of 54.5% increase in 2008. However, there are other profit measures as there are other costs which need to be
considered. The next is the operating margin. The operating profit margin is expressed as a percentage. This is the revenue after all direct and indirect costs have been deducted.
A well as the direct materials, there are also the indirect costs such as wages and administration, these are also known as the overheads. Here there is the same
pattern, with a small increase and improvement in the level and rate and a more significant improvement in 2009, as shown in table 2. Table 2 Operating profit margin
Operating Profit Margin 2009 2008 2007 Revenue 42,905,000 32,479,000 24,006,000 Operating profit 11,740,000 6,275,000 4,409,000 Operating profit margin 27.36% 19.32% 18.37% The most important measure is the net
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