Investment Decision: Goofy’s / Pluto’s
The gross margin is a measure of broad profitability. Goofy’s has a gross margin of 47.09% which is better than Pluto’s by 2.74%. In comparison with the industry standard gross margin of 46% Goofy’s gross margin is better than the industry, while Pluto’s is below the industry standard. The net margin ratio is a measure of the absolute profitability of a company. The net margin of Goofy’s is 13.54% and the net margin of Pluto’s is 12.58%. Both companies have a net margin that is above the industry standard. The return on assets metric measures how effective a company has been at generating profits from its assets. High ROA is the desirable outcome.
The financial analysis performed on Pluto’s and Goofy’s had some mixed results. In terms of profitability Goofy’s demonstrated better performance than Pluto’s illustrated by its higher gross and net margin. Pluto’s did a better job of generating profits from its assets and equity. Goofy’s is turning its inventory faster than Pluto’s, but Pluto’s had a superior asset turnover ratio. The liquidity position of Goofy’s is superior to Pluto’s due to the fact that its current ratio and quick ratio are higher than Pluto’s. The extremely low quick ratio of Pluto is a worrisome sign. The debt position of Goofy’s is lower than Pluto’s. Overall I would invest the $5,000 in common stocks from Goofy’s due to its superior profitability and liquidity among other factors.