Liquidity is the ability to convert any asset into cash quickly. Liquidity is important because liquid assets can provide cash that can be reinvested into other assets when prices are low. This can also reduce some investing risks by ensuring that an investor will be able to quickly react to market moves. There are several ratios that are used to measure liquidity – the current, quick, and cash ratios. Essentially, the higher the current asset ratio, the better. Amazon’s current ratio (107%) is higher than that of Walmart (83%) and this suggests that this company’s short term assets are more readily available to pay off the company’s short term liabilities than Walmart.
Amazon’s quick ratio and cash ratio are also higher than that of
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A higher margin percentage indicates a higher profitability. Therefore, Amazon (27.2) would appear to be more profitable than Walmart (24.9). In their 2013 financial report, Amazon demonstrates that their gross profit margin has increased in 2013 compared to prior years – which they attribute to their increase in their total sales/service sales.
The operating profit margin is another quantitative measure of profitability. Investors pay close attention to this ratio because positive and negative trends in the operating margin are attributable to management decisions. Amazon’s operating profit margin (1.0) is significantly lower than that of Walmart (5.90). This means that a net profit of $5.90 is made on each dollar of sales at Walmart whereas Amazon only makes a net profit of $1.00 on each dollar of sales. This indicates that a higher proportion of Walmart’s revenue is converted to operating income. Over the past few years, Amazon’s operating margin ratio has actually declined – which signifies that their probability is not improving as of resent times. In comparison, Walmart’s operating margin has been consistent or stable for the past few years.
Net profit margin is most often mentioned when discussing the profitability of a company because investors can see a great deal from a net profit analysis For example, this measurement allows them to
Costco’s gross margin has been well maintained over the five year period. Their gross margin of 10.4% is much lower than Sears’ of 26.6% and Wal-Mart’s of 21.5%. Only BJ’s has a lower gross margin of 9.2%. Costco’s 2001 gross margin suggests ability to remain profitable and very competitive at the same time. The company has been able to provide goods to customers at a very low mark-up and at a lower per unit cost.
Net Margin is the ratio of net profits to revenues of a company. It is used as an indicator of a company’s ability to control its costs and how much profit it makes for every dollar of revenue it generates. Net Margin is calculated using the formula: Net Margin = (Net Profit / Revenues ) * 100 Net margins vary from company to company with individual industries having typically expected ranges given similar constraints within the industry. For example, a retail company might be expected to have low net margins while a technology company could generate margins of 15-20% or more. Companies that increase their net margins over time generally see their share price rise over time as well as the company is increasing the rate at which it turns dollars earned into profits.
The liquidity of firm can be measured by computing certain ratio’s such as current ratio and acid ratio. For measuring Target Corporation’s 2014 liquidity; the firm’s current ratio and the acid ratio is computed. The company’s current ratio is 0.91 times which is computed by comparing current asset ($11, 573,000) with current liabilities ($12,777, 000) of the year 2014 (TGT Company Financial, n.d). The firm’s acid ratio is 0.26 times which is computed by deducting inventory ($8,278,000) from current assets. The inventory is deducted from current assets because the company has not received any money for the unfinished good or from unsold inventory worth ($8,278,000). To analyze the Target Corporation’s liquidity trend in 2014; the current ratio and acid ratio of 2014 is compared with the 2015’s ratios. In 2015, the firm’s current ratio was 1.20 times and the acid ratio was 0.45 times. These liquidity ratios reflect that the firm’s liquidity was better in 2015 than 2014. (See Table 1).
This measures the relationship between net profits and sales of a firm. The net profit margin is indicative of management’s ability to operate the business with sufficient success not only to recover revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also leave a margin of reasonable
Profit Margin: -This ratio relates the operating profit to the sales value (Walker, 2009). It tells us the amount of net profit per pound of turnover a business has earned.
profit margin of 5% to a current net profit margin of 18% in 2012, lululemon is
In terms of industry profitability, it appears that profit margins have a tendency to fall. This is because competition is high and customers tend to buy low-priced high-value items. The average gross margin and net profit margin is 37.1% and 14.3%, respectively (MSN Money, 2010).
Liquidity ratios measure the short term ability of a company to pay its obligations and meet their needs for maintaining cash. According to Cagle, Campbell & Jones (2013), “A good assessment of a company’s liquidity is important because a decline in liquidity leads to a greater risk of bankruptcy” (p. 44). Creditors, investors and analysts alike are all interested in a company’s liquidity. After computing liquidity
They have the highest percentage of revenues absorbed by cost. This would clearly suggest that their focused differentiation strategy has been giving them the position of being able to remain profitable in the industry of consumer electronics. We have calculated the profit margins, Table 4, and compared them in our analysis. Table 4 Profit Margin 1/31/2017 1/31/2016 1/31/2015 Best Buy 3.12% 2.27% 3.06% Walmart 2.81% 3.05% 3.37%
This Profit Margin ratio is acceptable, though not high. The result means that for each dollar of sales at Sears Co., the company earns only 3.27 cents in 1997, compared to 3.77 cents and 5.78 cents in 1996 and 1995 respectively. This slim and downward trend profit margin obviously won't make its investor happy.
Liquidity ratios measure the ability of a firm to meet its short-term obligations. A company that is not able
Operating profit margin figures in the table above show the return from net sales[13]. However profit margin ratios are high enough for the 3 years, there is a fall from 12.86% to 11.26% during 2011-12. Sales revenue increases with a higher rate than gross profit so there is a poor
Used to determine the competitive strength and cost effectiveness of a company, the operating profit margin shows what percentage of a company’s revenue is left over after covering variable costs. It is the operating profit divided by the net sales. Essentially, the operating profit margin depicts how much a company makes on each dollar of sales.
These ratios help company in determining its capability to pay short-term debts. Liquidity ratios inform about, how quickly a firm can obtain cash by liquidating its current assets in order to pay its liabilities. General liquidity ratios are: current ratio and quick ratio. Current ration can be obtain by dividing company’s current assets by its’ current liabilities. Generally a current ratio of two is considered as good (Cleverley et al., 2011). Quick ratio also known as acid test determines company’s liabilities that need to be fulfilled on urgent basis. Quick ratio can be obtained by dividing quick assets by current liabilities. Quick ratio is considered as stricter because it excludes inventories from current assets. Generally a quick ratio of 1:1 is considered as good for the company. Higher quick
Net Profit Margin- The net profit margin of 18.34 percent for 2008 indicates that 18.34 cents of net income was generated for each dollar of sales. The significant increase of 7.83 percent, from 2007’s 10.51 percent, yielded an additional $1.84 billion in profit on the company’s $23.52 billion in revenue.