SAMPLE:

1. Quick Ratio

In comparing the quick ratio of Shakey’s and Max’s, it shows that Shakey’s is more able to meet its
short-term obligations with its most liquid assets, than Max’s. However Shakey’s is
lower than industry average of 25%. Although the Shakey’s quick ratio is below the industry average,
it's no indication that the company is struggling. In fact, the Shakey’s quick ratio of .75, indicates that
the company does not have to heavily rely on its inventory in order to pay its short-term creditors.

2. Debt-to-equity Ratio

In comparing the Debt-to-equity Ratio of Shakey’s and Max’s, it shows that Max’s is more
risky than Shakey’s because Max’s seems getting more of their financing
from borrowing which may pose a risk to the company if debt levels are too high.

The Shakey’s 20117 debt-to-equity ratio is 1.29. That is, for every $1.00 invested by the
company's owners, investors such as bank and suppliers have invested P1.37 into the company. In
2017, the average business shows a debt-to-equity ratio of 0.12 or 12%. That is, for every $1.00
invested by the company's owners, investors such as banks have invested 12 cents into the company.
As a result, creditors of the Shakey’s have invested more than the owners of the company. On the
other hand, other firms within the industry see its owners investing more than creditors. This ratio
certainly indicates that the Shakey’s heavily relies on its creditors (rather than its owners) to finance
the operation. Moreover, a debt-to-equity ratio of 1.29 is unacceptable, because A company with a
higher ratio than its industry average, therefore, may have difficulty securing additional
funding from either source.

Gross Profit Margin

The Gross Profit Margin ratio provides an indication of how well a company is setting its prices and
controlling the production costs. Investors like to see a high gross profit margin since it indicates the
company is making higher margins on each sale. The Widget Manufacturing Company's gross profit
margin ratio and the Industry Average gross profit margin ratio for 200Y are calculated below.

Widget Company Industry Average

200Y 200Y

Sales - Cost of goods sold $112,500 - $ 85,040 $130,420 - $94,560

Sales $112,500 $130,420

=0.24 =0.28
In 200Y, the Widget Manufacturing Company's gross profit margin is 0.24 or 24%. This means, for
every one dollar ($1.00) generated in sales, 24 cents remains in the company to pay operating
expenses and taxes. Assuming, all products produced by the company sell for $1.00, the company
would make 24 cents from each sale. As you can see, the 200Y industry average gross margin is 0.28
or 28%. This means, for every one dollar ($1.00) generated in sales, 28 cents remains in an average
company to pay for operating expenses and taxes.

The Widget Manufacturing Company is making 4 cents less on every one dollar generated in sales
compared to the average firm within the industry. This would lead us to believe that other businesses
within the industry have a greater aptitude in setting prices and controlling production costs. Financial
analysts would certainly suggest the Widget Manufacturing Company focus its attention on improving
pricing and controlling production costs. By doing so, the company can improve its gross margin (the
amount made) on each sale.

Net Profit Margin

The Net Profit Margin ratio assists a company in determining whether their selling prices are too low or
if expenses are too high, or both. Investors like to see high net profit margins since it provides an
indication of how well management is setting its prices and controlling both production costs and
operating expenses. The Widget Manufacturing Company's net profit margin ratio and the Industry
Average net profit margin ratio for 200Y are calculated below.

Widget Company Industry Average

200Y 200Y

Net Income After Taxes = $ 4,347 $ 10,700

Sales $112,500 $130,420

= 0.04 = 0.08

In 200Y, The Widget Company's net profit margin is 0.04 or 4%. This means, for every one dollar
($1.00) generated in sales, 4 cents remains in the company, or is available to be distributed to the
owners of the company, or a combination of both. If we assumed, all products sold by the company
have a selling price of $1.00, then 4 cents would contribute to net income. As you can see, the
average firm within the industry has a profit margin of 0.08 or 8%. This means, for every one dollar
($1.00) generated in sales, 8 cents remains in the company, or is available to be distributed to the
owners of the company, or a combination of both.

The Widget Manufacturing Company is earning 4 cents less on every one dollar generated in sales
compared to the average firm within the industry. This would lead us to believe that other businesses
within the industry have a greater ability to set prices, control production costs (cost of goods sold),
and manage operating expenses . Financial analysts would certainly suggest The Widget
Manufacturing Company focus its attention on improving its pricing policy, and on lowering its
production and operating expenses. By doing so, the company should earn a higher net profit margin.

Return on Total Assets

The Return on Total Assets ratio measures how well a company is using its assets to generate after
tax profits (net income after taxes). Investors like to see a high return on total assets since it
indicates a company is using its assets efficiently to generate after tax profits. The Widget
Manufacturing Company's return on total assets ratio and the Industry Average return on total assets
ratio for 200Y are calculated below.

Widget Company Industry Average

200Y 200Y

Net income after taxes = $ 4,347 $10,700

Total Assets $77,695 $91,564

= 0.06 = 0.12

In 200Y, The Widget Company's net profit margin is 0.06 or 6%. This means, for every one dollar
($1.00) spent on purchasing assets, 6 cents is generated in after tax profits. The after tax profits may
remain in the company or may be distributed to the owners of the firm, or a combination of both. As
you can see, the 200Y industry average return on total assets is 0.12 or 12%. This means, for every
one dollar ($1.00) an average business within the industry spends on purchasing assets, it will
generate 12 cents in after tax profits. The after tax profits (net income after taxes) may remain in
these companies or may be distributed to their owners, or both.

In summary, The Widget Manufacturing Company earns 6 cents less on every one dollar spent on
assets compared to other businesses within the industry. This would lead us to believe that other
businesses within the industry are using their assets more efficiently to generate revenue. Financial
analysts would suggest the company's low Return on Total Assets ratio is a direct result of its average
collection period ratio, its inventory turnover ratio, and its low profit margin ratios.

Return on Equity

The Return on Equity ratio measures how well a company is using owner's investments to generate
after tax profits (net income after taxes). Investors like to see a high return on equity since it
indicates the company is using the owner's investments efficiently to generate after tax profits. The
Widget Manufacturing Company's return on equity ratio and the Industry Average return on equity
ratio for 200Y are calculated below.

Widget Company Industry Average

200Y 200Y

Net income after taxes $ 4,347 $10,700

Total Equity $32,820 $53,564

= .13 = .20

In 200Y, The Widget Company's return on equity is 0.13 or 13%. This means, for every one dollar
($1.00) invested by the owners, the company generated 13 cents in after tax profits. As you can see,
the 200Y industry average return on equity is 0.20 or 20%. This means, every one dollar ($1.00)
invested into an average business within the industry generates 20 cents in after tax profits for its
owners. The after tax profits (net income after taxes) may remain in these companies, or may be
distributed to their owners, or a combination of both.

Therefore, The Widget Manufacturing Company earns 7 cents less (20 cents - 13 cents) on every one
dollar invested by its owners, compared to owners of an average business within the industry.
Financial analysts would suggest the company's low Return on Equity ratio is a direct result of its
average collection period ratio, its inventory turnover ratio and its low profit margin.