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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

Attachments

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.

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