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Financial Ratio Analysis

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Financial Ratios Analysis

Maksim Yorsh

BUS 303 M/W/F 11:00 AM

September 2, 2015

Dr. Katherine E. Hyatt

Financial Ratios Analysis

In this assignment, we are supposed to look at three financial ratios of different companies in the same industry, compare those ratios and figure out which company we should invest in based on the conducted analysis.

First of all, I would like to define financial ratio. According to NetMBA (2010), financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement.

Financial ratios are the most common and widespread tools used to analyze a business' financial standing. Ratios are easy to understand and simple to compute. They can also be used to compare different companies in different industries. Since a ratio is simply a mathematically comparison based on proportions, big and small companies can be use ratios to compare their financial information. In a sense, financial ratios don't take into consideration the size of a company or the industry. Ratios are just a raw computation of financial position and performance.0

Ratios allow us to compare companies across industries, big and small, to identify their strengths and weaknesses. Financial ratios are often divided up into six main categories: liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage.

        The method for analyzing and comparing the Business Financial Ratios will be the following:

  1. Gathering information from various sources on company’s financial data.
  2. Building a table for a visual comparison of that data as well as interpreting it.
  3. Comparing the major financial ratios of each company
  4. Analyzing what those ratios mean in terms of investing
  5. Choosing the company with the most favorable ratios
  6. Summarizing and explaining our decision

The companies I have decided to consider for this analysis are all very close competitors in fast-food industry. The analysis will discuss the financial ratios of McDonalds (MCD), Jack in the Box (JACK) and Dominos’ Pizza (DPZ).

Criteria/Company

Jack in the BOX

McDonalds

Domino’s Pizza

Explanation of the ratio

Meaning to investor

Winner

Stock Price per share in $

81.77

96.25

108.70

Price of the stock per share

NONE

Price to Earnings Ratio (P/E)

31.00

19.44

33.37

Shows how much stock investors are paying for each dollar of earnings.

The lower the better

McDonalds

Price to Book Ratio(P/BV)

9.83

7.02

N/A

Used to compare a company’s market price to its book value.

High P/E –stock is overpriced

Low P/E may have greater potential for rising

McDonalds

Debt to Equity Ratio

196.92

116.62

N/A

Shows how much the company is leveraged. How much debt in involved in business

The lower the better

McDonalds

Operating Profit Margin (OPM)

12.18

28.41

17.53

Shows operational efficiency and pricing power. Shows portion of revenue left after meeting variable cost

The higher the better

McDonalds

Current Ratio

0.71

1.52

1.61

Shows the liquidity position. How well the company is meeting its short-term liabilities

The higher the better. <1 is bad

Domino’s Pizza

Asset Turnover Ratio

1.15

0.77

3.48

Shows how efficiently the management is using assets to generate revenue

The higher the ratio the better

Domino’s Pizza

Return on Equity

25.99

32.97

N/A

Measures the return the return that shareholders get from the business and overall earnings

The higher the better

McDonalds

Dividend Yield

1.47%

    3.53%

  1.14%

Dividend per share divided by the share price

The higher the better

McDonalds

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