acctingpapercontent - Analyzing the four financial...

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Analyzing the four financial statements from an annual accounting report is crucial for most creditors and investors, especially when it comes to their decision-making process. The three companies that are to be analyzed in this report come from the automobile industry, and are: Mercedes, Nissan, and Toyota. The financial statements from the past four years (from 2006 till 2009) will be closely analyzed in accordance with ten important accounting ratios. These ratios are divided into three categories which are liquidity, solvency, and profitability. The analysis of the ratios from each of these categories will provide enough information that would help determine the preferred company for creditors and investors. T ABLES OF R ATIOS : Liquidity Ratios Huda Mercedes Fatmah Nissan Hassa Toyota Current Ratio 0.95, 1.27, 1.06, 1.14 1.24, 1.16, 1.20, 1.32 1.07, 1.00, 1.01, 1.07 Acid-test Ratio 0.69, 0.98, 0.74, 0.87 1.06, 0.98, 0.74, 1.25 0.86, 0.80, 0.82, 0.87 Total Asset Turnover 0.77, 0.56, 0.72, 0.60 1.08, 1.11, 1.19, 1.09 0.67, 0.74, 0.83, 0.63 Solvency Ratios Huda Mercedes Fatmah Nissan Hassa Toyota Debt Ratio 0.82, 0.72, 0.75, 0.75 1.08, 0.69, 0.68, 0.71 0.61, 0.62, 0.61, 0.64 Equity Ratio 0.18, 0.28, 0.25, 0.25 0.27, 0.29, 0.32, 0.35 0.37, 0.36, 0.37, 0.35 Debt-to-Equity Ratio 4.56, 2.53, 3.04, 3.05 4.02, 3.28, 2.09, 2.06 1.66, 1.70, 1.68, 1.83 Profitability Ratios Huda Mercedes Fatmah Nissan Hassa Toyota Return on Total Assets 0.02, 0.02, 0.01, -0.02 5.92, 4.88, 4.04, -6.22 0.05, 0.05, 0.06, -0.01 Profit Margin 0.02, 0.04, 0.01, -0.03 0.05, 0.04, 0.04, -0.06 0.07, 0.07, 0.07, -0.02 Gross Margin 0.17, 0.24, 0.22, 0.17 0.23, 0.23, 0.22, 0.22 0.19, 0.19, 0.18, 0.09 Return on Equity 0.09, 0.11, 0.04, -0.08 0.16, 0.14, 0.13, -0.13 0.14, 0.15, 0.14, -0.04 We begin our analysis with the first group of ratios that involve estimating each company’s “liquidity”, or their ability to meet short-term cash requirements. Generally, Nissan seems to have the better liquidity ratios. When
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looking at the current ratios, Nissan seems to have ratios that are over “1” which means that its current assets exceed its current liabilities. In other words, it has no trouble covering its liabilities using its current assets in the short-run. However, it’s worth to note that these ratios are fluctuating (decreasing, then increasing), but seem to be increasing over the past two recent years. When looking at Mercedes’ and Toyota’s current ratios, the ratios for both companies are overall either approaching “1” ,which means that the company would possibly expect to face trouble covering its liabilities, or below “1” which ensures the inability to cover their current liabilities in the short-run. The asset-test ratio results reveal the similar favorable option towards Nissan, since its ratios are all above “1”, or extremely close
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