Common stock equity assets liabilities categories of

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Common Stock Equity = Assets Liabilities Categories of Financial Ratios Profitability Ratios: Example 1 Pelican Paper, Inc. and Timberland Forest, Inc. are rivals. Some financial statement values for each company are as follows:
2/13/2017 Categories of Financial Ratios Profitability Ratios: Example 1 Calculate the following for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other.
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2/13/2017 Categories of Financial Ratios Profitability Ratios: Example 1 Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other.
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2/13/2017 50 Categories of Financial Ratios Profitability Ratios: Example 1 Return on Assets = Net Profit After Taxes / Total Assets Return on Assets (Pelican) = $3690000/$10000000 = 0.369 Return on Assets (Timberland) = $3450000/$10000000 = 0.345 Return on Equity = Net Profit After Taxes / Stockholders’ Equity Return on Equity (Pelican) = $3690000/$9000000 = 0.41 Return on Equity (Timberland) = $3450000/$5000000 = 0.69 Categories of Financial Ratios Profitability Ratios: Example 1 Pelican is more profitable than Timberland, as shown by the higher operating profit margin, net profit margin, and return on assets. However, the return on equity for Timberland is higher than that of Pelican.
2/13/2017 51 Categories of Financial Ratios Profitability Ratios: Example 1 In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland’s investors undertake when they choose to purchase its stock instead of Pelican’s? Categories of Financial Ratios Profitability Ratios: Example 1 Even though Pelican is more profitable, Timberland has a higher ROE than Pelican due to the additional financial leverage.

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