Sample Essay

Financial analysis and study of various ratios gives an investor an insight into the profitability and stability of Barclays and Vodafone. Return on Equity measures accounting earnings for a period in relation to the shareholders equity invested.

It is in other terms a summary of the income statements on both sides of the balance sheet. Profit margin, asset turn over, and financial leverage are the three major determiners of Return on Equity. Return on assets is a product of the multiplication of the profit margin and the asset turnover. While Return on Equity only considers equity capitals, Return on Assets doesn’t distinguish between capital raised from shareholders and that raised from creditors. As such, Return on Assets measures the return on all money invested in assets.

Fixed Asset turnovers are reflections of the capital intensity known as a control ratio. Other control ratio is the inventory turnover, the collection period, Day’s sale in Cash and the Payables Period. Collection period highlights a company’s management of its accounts receivable. Day’s sale in cash determines how much liquidity a business requires for efficient operation by considering how much the asset cash generates for Barclays and Vodafone. The coverage ratios indicate how much a business is making each year in relation to the burden the debt imposes. The liquidity ratios determine a firm debt capacity using the liquidity of its assets relative to its liabilities.

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