# Using Financial Ratios to Make Recommendations and Improvements

Choose a public company, and present findings from your financial analysis in a report. Your report must include the following:

Describe why the company was chosen.

Give a description of the operating profit margin.

Give a description of the asset turnover.

Give a description of the equity multiplier.

Give a description of the return on equity.

Give a description of the return on assets.

Calculate the operating profit margin. Explain your answer.

Calculate the asset turnover. Explain your answer.

Calculate the equity multiplier. Explain your answer.

Calculate the return on assets. Explain your answer.

Calculate the return on equity. Explain your answer.

What does the DuPont analysis describe about the company chosen?

Which ratio demonstrates the company's weakest area? Explain your answer.

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#### Solution Preview

Operating profit margin is a profitability ratio that is calculated by EBIT/Net Sales and it indicated the firm's ability to earn profits in operating (higher prices or lower costs). EBIT (Earnings before interest and taxes and is found on the income statement. Net sales are also found on the income statement.

Asset turnover is an asset management ratio which indicates to the extent in which assets are turned over or used to support sales. This ratio is found by taking net sales (income statement) divided by total assets (found on balance sheet). This ratio indicates the measure of a dollar of sales generated by one dollar of the firm's assets. For example, an asset turnover 0.33 indicates that the firm will require $3.00 of investments in assets in order to produce $1 in revenue.

The equity multiplier is a financial leverage ratio which ...

#### Solution Summary

The solution assists in using financial ratios to make recommendations and improvements.