Test of Profitability Analysis

Test of Profitability Analysis - than 1 is considered to...

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We can see the biggest change in ROE. ROE decreased from133% to 29.6%. The decrease in ROE is due to an increase in SE and a decrease in net income. It shows that J Crew’s performance has deteriorated. ROA has also decreased from 22% to 10%. Interest expense decreased along with net income while total assets have increased. The increase in total assets can be explained by an increase in SE. A decrease in financial leverage percentage shows that J Crew has utilized less debt in its capital in comparison to the previous term. A decrease in EPS was mainly caused by a decrease in net income. It would make its stocks less attractive. Quality of Income has not much changed compared to the last year. A quality of income ratio that is higher
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Unformatted text preview: than 1 is considered to indicate high-quality earnings because each dollar of income is supported by one dollar or more of cash flow. Thus, a quality of income of 1.73 and 1.76 shows high-quality earnings. Profit margin has decreased from 8% to 4% due to a decrease in net income with an increase in net sales revenue. For 2008, Each dollar of J Crew’s sales generated 8 cents of profit but 4 cents for 2009. It could be explained by the fact J Crew reduced the prices of their products in order to boost their sales volume. A decrease in fixed asset turnover ratio shows that J Crew has operated less efficiently. This means that J Crew’s ability to effectively utilize its fixed assets to generate revenue has dropped....
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This note was uploaded on 02/17/2010 for the course ECON ECON taught by Professor Shomali during the Spring '04 term at University of California, Berkeley.

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