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# Financial Ratio Calculation

See attached file for proper format.

Industrial Company #1
(in millions) 2008 2009 2010
Sales \$4,250 \$4,500 \$4,750
Operating Income \$400 \$445 \$480
Net Income \$200 \$225 \$250

Current Assets \$2,500 \$2,750 \$2,850
Current Liabilities \$2,300 \$2,450 \$2,500

Shares Outstanding 100 100 100
Average Stock Price \$32 \$39 \$50

Industrial Company #2
(in millions) 2008 2009 2010
Sales \$3,350 \$3,750 \$4,250
Operating Income \$335 \$395 \$470
Net Income \$168 \$198 \$240

Current Assets \$1,750 \$1,900 \$2,100
Current Liabilities \$1,350 \$1,400 \$1,500

Shares Outstanding 80 80 80
Av Stock Price \$38 \$46 \$62

2010 Industry Avg.

Operating Margin 10.50%
Net Margin 5.50%
Current Ratio 1.25
Earnings/Share \$2.75
PE Ratio 20.0

I need calculations of the following values for both Industrial Company #1 and Industrial Company #2 using the information from the data tables located above for:

o Operating income margin
o Net income margin
o Current ratio
o Earnings per share
o Price-to-earnings (P/E) ratio.
o Compare the company calculation values to the industry averages.
o Compare calculations for both Industrial Company #1 and Industrial Company #2

#### Solution Preview

Please see attached files for ratio calculations.

I listed the formula at the top of the spreadsheet, then used Excel to calculate them.

Compare the company calculation values to the industry averages.

o IC#1
- Operating margin is below industry average. This suggests inefficiences in the company, as a dollar of sales generates less profit than the industry average.
- Net margin is below industry average. Similar to Operating margin, it suggests less efficiency in processes (or higher fixed costs)
- Current ratio is below industry ...

#### Solution Summary

Includes Excel spreadsheet that will calcuate: Operating Margin, Net Margin, Current Ratio, Earnings/Share, and PE Ratio. Formula for each are included for reference. A Word document is also included that compares each ratio in the context of enterprise valuation.

\$2.19