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Finance & Accounting
Pages 3 (753 words)
Investment Decision: Goofy’s / Pluto’s Name December 2, 2012 Course name: Professor’s name Name of University Introduction Currently I’m looking to invest $5,000 in the common stocks of a company that has the potential to provide equity growth. Common stocks are a profitable investment due to the fact that an investor can obtain capital gains as well dividends payment each year.
Analysis Ratio analysis is a financial analytic tool that is very useful to analyze the performance of an enterprise. A ratio analysis of Goofy’s and Pluto’s which includes the industry standard is illustrated below. Ratio Goofy's Pluto's Industry Gross margin 47.09% 44.35% 46% Net margin 13.54% 12.58% 11% Return on assets (ROA) 11.24% 12.42% 14% Return on equity (ROE) 19.74% 33.71% 30% Asset turnover ratio 0.83 0.99 1.3 Inventory turnover ratio 3.76 2.84 2.5 Current ratio 1.56 1.09 1.75 Quick ratio 1.05 0.43 1.1 Debt ratio 0.43 0.63 38% Debt to equity ratio 0.76 1.71 0.75 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. ...
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