Jones vs. Smith Profitability Ratio\'s Jones Smith

¶ … Jones vs. Smith

Profitability Ratio's

Jones

Smith

Profit Margin

Return on assets

Return on equity

Liquidity Ratios

Current Ratio

Quick Ratio

If I were a credit manage I would approve a short-term trade credit to Smith before I would to Jones since their current and quick ratios are both higher. However, given the fact that all of the liquidity ratios were higher than one, I would probably offer them both a short-term line of credit.

If I were an investor however, I would be more attracted to Jones' operation since he not only receives a greater profit margin, but also makes better use of his assets and his equity. Although Jones seems to have more of an aggressive growth strategy which would most likely offer a greater return to the investor in the future.

Gourmet Foods Inc.

Gourmet Foods is currently experiencing a tremendous growth rate in its total sales volume. In 2011 it is apparent from their balance sheet that the company made a large capital investment in 2011 based on a significant increase in long-term liabilities as well as total assets and depreciation. The company also had their accounts receivable increased by over thirty eight percent and a ROA of just over five percent. This indicates that although the company is growing rapidly that they may be experiencing some growth pains. For example, the increase in accounts receivable and the decrease in ROA could indicate that management is having trouble keeping up with the growth. Although the company still looks like an attractive investment, it may be prudent to identify the capabilities of the management team to handle its growth rate.

Sales

% Growth

Net Income

2009

1560000

114660

2010

1950000

25.00%

119340

4.08%

2011

2437500

25.00%

143910

20.59%

Barksdale Corporation

In 2011, Barksdale Corporation had total sales of 140 million dollars. The firm's profit margin is 10%. The dividend payout ratio is 50% of earnings. Notes payable are currently $9.8 million. Long-term bonds and common stock are $7million and $14 million respectively. Retained earnings at the end of 2010 were $46.2 million.

The balance sheet items that vary directly with sales are shown below:

Percent

Cash

5%

Accounts receivable

15%

Inventory

20%

Net fixed assets

40%

Accounts payable

15%

Accruals

10%