Ratios for ABC Cleaners
|Year||Year 1||Year 2||Year 3||Good or Bad|
|Return on investment||42.1%||57.1%||39.2%||Good|
|Debt to equity||0.32||0.16||0.08||Good|
|Debt to assets||0.24||0.14||0.07||Good|
|Net profit margin on sales||5.2%||8.5%||8.4%||Little low|
|Break even sales ($)||$618,319||$698,039||$763,970||Little high|
|Break even sales (%)||90.16%||86.80%||87.17%||Little high|
Current ratio: Measures ability to meet short term obligations. Higher the number the better. Anything under 1 is really bad. Current liabilities divided by current liabilities.
Return on investment: Is it worth it to proceed with the business? Is is succeding? Would you be better off investing your money in a term deposit or mutual fund? The rate of return for this company is good. Gain from investment minus cost of investment divided by cost of investment.
Debt to equity: A measure of financial leverage. What proportion of equity and debt is the company using to finance it’s assets. A good sign is a declining number since it shows more earnings are being used to finance additional assets and growth. Total liabilities divided by equity.
Debt to assets: How much of the companies assets have been financed by debt. A declining balance is good since is shows less debt is used to finance assets. However, there needs to be a healthy balance between equity and debt being used to finance additional assets. Short and long term debt divided by total assets.
Net profit margins: For every dollar earned, how much is the company keeping. Profit margins differ depending on the industry. The above figure is a little low so a close eye has to be kept on reducing cost of sales and/or expense. Net income divided by revenues.
Break even sales: Measures the amount of sales needed to cover all associated costs. In this case, break evens are a little high and will have to be closely monitored. May have to re-evaluate pricing or reduce associated costs.
Fixed costs per unit divided by unit selling point minus variable costs.