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    Gross Profit Margin and other ratios

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    The Eddison Electronics Company (EEC) owns a wide variety of manufacturing companies that make sophisticated electronic controls. You are EEC's corporate business financial analyst. Your responsibilities include the following:

    Creating and analyzing the monthly performance of each company within EEC.
    Providing and analyzing costing information for each company within EEC.
    Analyzing the major capital projects submitted by each company.

    EEC has introduced a new 1.5GB computer memory chip. The following is the plan and first-year results of the 1.5GB chip project and the financial activity for 2006.

    Using the Library and other course resources, find a manufacturing company's annual report.

    Calculate the following ratios for the company selected:

    Return on Assets
    Return on Equity
    Gross Profit Margin
    Debt/Equity Ratio
    Debt Ratio
    Current Ratio
    Quick Ratio
    Inventory Turnover
    Total Asset Turnover
    Price Earnings Ratio
    Using the calculated ratios, analyze the financial performance of the firm. In a memo to the CEO, explain the ratios calculated. Also address other methods of analyzing financial statements besides ratio analysis. Lastly, explain your analysis of the firm, making recommendations for improvements.

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    Solution Preview

    I have selected the ConAgra Foods for the queries. In financial analysis, we need qualitative information and try to read between the numbers. We have to ask all the right questions. Over the years, there are some ratios, which have become more popular and handy for rule of thumb analysis of financial statements. Our purpose in this note is not deride them but to advice the reader to use them properly to derive the correct results.
    Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.

    Investor's Perspective

    Company who wants to invest into ConAgra will be interested in knowing about the profitability of the organization and the return that the it is giving to its shareholders. The following ratios will help in knowing the profitability and about the Return on its ...

    Solution Summary

    This provides the steps to compute and analyze the Gross Profit Margin and other ratios