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Ratios

The document compares the profitability, efficiency, and financial health ratios of two companies, Elen and Melanie. For profitability ratios, Elen has higher gross profit margin, operating income margin, net profit margin, return on assets, and return on equity, so the document concludes Elen is more profitable. For efficiency ratios, Melanie has higher asset turnover, fixed asset turnover, inventory turnover, and average collection period, so Melanie is more efficient. For financial health ratios, Melanie has lower debt to equity and debt ratios and higher current and quick ratios, so Melanie is more financially healthy.

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Maxene Joi Pigtain
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702 views

Ratios

The document compares the profitability, efficiency, and financial health ratios of two companies, Elen and Melanie. For profitability ratios, Elen has higher gross profit margin, operating income margin, net profit margin, return on assets, and return on equity, so the document concludes Elen is more profitable. For efficiency ratios, Melanie has higher asset turnover, fixed asset turnover, inventory turnover, and average collection period, so Melanie is more efficient. For financial health ratios, Melanie has lower debt to equity and debt ratios and higher current and quick ratios, so Melanie is more financially healthy.

Uploaded by

Maxene Joi Pigtain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Maxene Joi A.

Pigtain
12 - St. Hedwig

Exercise 6.1

Compute for the profability ratios of both Elen and Melanie. Which of the two companies Do you think is more Profitable?

PROBLEM 1:

PROFITABILITY RATIO
Name of Ratio Formula
Gross Profit Margin Gross Profit/Net Sales

Operating Income Margin Operating Income/Net Sales

Net Profit Margin Net Income/Net Sales

Return on Assets Net Income/Average Assets

Return on Equity Net Income/Average Assets

Conclusion:
ELEN COMPANY IS MORE PROFITABLE

Compute for the Efficiency ratios of both elen and melanie. Which of the two companies Do you think is more Efficient?

PROBLEM 2:

EFFICIENCY RATIO

Name of Ratio Formula

Asset turnover Net Sales/Average Asset

Fixed asset turnover Net Sales/Average Fixed Asset

Inventory turnover Cost of Goods Sold/ Ave. Inv.

Days in inventory 365/Inventory Turnover

Accounts receivable turnover Net Sales/Average AR

Average collection period 365/ AR Turnover

Conclusion:
MELANIE COMPANY IS MORE EFFICIENT

Compute for the Financial Health Ratios of both elen and melanie. Which of the two companies is more Financially Healthy?
PROBLEM 3:
FINANCIAL HEALTH RATIO

Name of Ratio Formula

Debt to equity ratio Total Debt/Equity

Debt ratio Total Debt/Total Assets

Interest coverage ratio Operating Income/Interest Expense

Current Ratio Current Assets/Current Liabilities

Quick ratio Quick Assets/Current Liabilities

Conclusion:
MELANIE COMPANY IS MORE EFFICIENT
k is more Profitable?

Elen Company Melanie Company


30.25% 28.92%

10.73% 5.62%

6.64% 2.99%

12.39% 4.73%

12.39% 4.73%

k is more Efficient?

Elen Company Melanie Company

1.87 1.58

3.03 2.55

9.49 12.59

38.47 28.99

9.8 10.34

37.25 35.29
re Financially Healthy?

Elen Company Melanie Company

Solvency Ratios
25.81% 41.09%

20.52% 29.13%

18.52 8.45
Liquidity Ratios
0.5 0.63

2.93 1.6

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