Financial Management Principles - Essay Example

Net profit margin of the company further reveals that the company is remained with only about 7% of the total sales revenue after meeting cost of sales, operating expenses, interest expense, taxes and dividends etc. The difference between the company’s gross and net profit margin indicate the amount of profit foregone in the course of meeting various expenses. This means that the company has lost about 93% of its revenue in meeting all the various expenses. The return on assets ratio for the company in consideration is 4.

88%, which connote that the company has utilized all of its various fixed and current assets to generate a return of 4.88% after meeting all the expenses. Strident Marks Inc.’s return on equity ratio reveals that the company has been able to generate a profit of 8.49% after engaging the total funds invested by its investors and shareholders for the year ended 2005. The current ratio for Strident Marks Inc. reflects that the company has a pretty healthy state of liquidity, i.e., it keeps about $2.

57 worth of current assets to pay off $1 worth of current liabilities. The company’s working capital position is highly satisfactory and its current assets are greatly sufficient to meet its current liabilities. However, having such a high current ratio also reveals that some of the company’s fund is lying idle without being invested into the business. The quick ratio for the company shows that after keeping aside inventory from the current assets, the company is left with $2.48 worth of assets per $1 worth of liabilities.

It also shows that not much of the company’s cash is tied up into inventory and the company’s short-term position is highly liquid. This ratio reveals that 34.68% of the company’s total assets are financed with borrowed capital, while rest of the assets are financed with equity funds supposedly. Hence the company currently banks on less external debts