留学生作业|公司业绩的主要指标

留学生作业|公司业绩的主要指标

Key Indicators Of A Companys Performance

 

财务比率是公司业绩的关键指标。我们使用的一些关键财务比率从电子表格，并分为两个时期，2004-2006年，2007-2009年基于经济条件，他们代表扩张和收缩周期分别。我们计算每个公司的不同时期的平均值。

 

Financial ratios are key indicators of a company's performance. We used some key financial ratios from spreadsheets, and classified them into two periods, 2004-2006, 2007-2009 based on economic condition, they represents expansion and contraction period respectively. We calculate the average of every ratio for different period of each company.

 

ROA is an indicator of how profitable a company is relative to its total assets.ROA gives an idea as to how efficient management is at using its assets to generate earnings.It is calculated by dividing a company's annual earnings by its total assets. The left graphs belong to Home Depot, we can see that home depot had higher ROAs compare that of Lowe's in the expansion period and also the contraction period. The averages of ROA for those two companies are 13.62% and 12.19% in expansion period. Home Depot is more efficient in management at using its assets to generate earnings than Lowe's in expansion period. They had the same decreasing trend, but the Lowe's is more stable than Home depot, they even have a higher average ROA in contraction period, 8.23%. Overall, from ROA, we know that Lowe's is less risky and more stable than Home depot.

 

ROI is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment. Form the graphs above; we can see that Home depot was more efficiency of management investments. Their average ROI for expansion period was 19.75%, much more than Lowe's 16.83%, but Home depot is in a decreasing trend, while at the same time, Lowe's is in increasing trend. In contraction period, they are decreased. However, Home depot decreased from 21% to 9% had a larger volatility than Lowe's. It means that Home depot is more risky than Lowe's.

 

The amount of net income returned as a percentage of shareholders equity.Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

 

They had exactly the same trend in expansion period, they all reached the highest ROE in 2005 and they decreased, but home depot has a little higher ROE 22.18% compare with Lowe's 20.67%, which means Home depot is more profitability for investors. In the contraction period, they all had decreasing trend and almost the same slope.

 

Profit margin is a ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

 

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Though Home depot had a higher average Profit margin in expansion period, Lowe's has a better trend. At 2006, Lowe's profit margin was 7%, higher than Home depot's 6.34%. In contraction period, they all have decrease trend and almost the same slope. Lowe's had a better performance in 2008, the worst year in financial crisis.

 

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

 

Both of those two companies decreased in 2006, the average ratios for Home depot and Lowe's were 1.67, 1.79. Though the Home depot has a low turnover ratio, they still had a lower profit margin. Both of them should pay attention to their assets using efficiency. They can increase this ratio by using a lenient pricing strategy.

 

The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders' return on their investment and often there are tax advantages associated with borrowing. Home depot had a higher bankruptcy risk. And Home depot had an increasing trend, though average for Home depot was 1.69 and 1.79 for Lowe's.

 

This is a measurement of a company's financial risk by determining how much of the company's assets have been financed by debt. It is calculated by adding short-term and long-term debt and then dividing by the company's total assets. Overall those two periods, Lowe's had a more stable trend; it was relative stay around 20%. In expansion period, Home depot's debt to assets ratio increased dramatically, Home depot raised lots of debt for its expansion during that time, so Home depot has a relative high financial risk, though the ratio decreased in contraction period, but it is still higher than that of Lowe's.

 

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

 

Both of those two company had current ratio higher than 1. In expansion period, the average ratios for Home depot and Lowe's are 1.31 and 1.28. In contraction period, they all decreased by 0.07, still relative stable.

 

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

 

Common Size Ratio

 

Cash& equivalents is a key liquidity indicator, the higher the better. Both of the companies had a decrease trend from 2004 - 2007, and then increased in the recent two years. They decrease trend may caused by the companies action to handle financial crisis. They may face a hard time to keep the companies' daily operation.

 

Receivables account may include the credit sale of a company. It is impact by a company's sale policy. Though the all declined from 2004 to 2009, Lowe's has 0% since 2006. This result may be caused by Lowe's strict sale policy. Lowe's may have low risk in sale revenue collecting, but with a relative low sale amount.

 

Inventories is a key account in a company's balance sheet. We can see from the graphs, both of the companies have a relative stable inventories level, around 25%. 25% is an average level for this industry. Both of them have healthy inventory level, which can meet daily sale need and do not cause too much inventory costs.

 

Long term debt is important when we make decision to make loans. Too much long term debt may cause uncertainty for lenders to receive their loans. Home depot has higher long term debt than that of Lowe's, though it was decreased from 2007. Lowe's has a relative stable long debt, around 15%. Lowe's is less risky than Home depot in terms of long term debt risk.

 

Both of them face a decline in their net income, however, Lowe's decrease rate is slower than that of Home depot. It may due to Lowe's well handled the financial crisis impact on its sale.