Sample Essay

Financial ratios provide deep insights and easy process of interpreting performance of the firm. For instance the ratios expose whether the operating expenses are too high or whether the firm’s assets are utilized effectively to generate income for the firm.

Financial ratios are classified in a variety segments. First, liquidity ratios expose the firm’s ability to pay debts.

Current Ratio of Vodafone 2008 = Total Current Assets/ Total Current Liabilities

= 8,724 / 21,973

=0.40

This current ratio is not admirable since the most optimal value is 1.

Debt to Equity = Total Liabilities/ Net worth (Total Equity)

=21,973/76,471

=0.29

Other financial ratio comparisons between Vodafone and Barclays for trading period ended 2008

Vodafone Barclays
Gross Profit Margin = Gross Profit/Total sales 0.38 0.012
Return On Assets = Net Profit Before Taxes/Total Assets 0.071 0.0030
Return on Equity = Net Profit Before Taxes/Net worth 0.12 0.35
Sales to Net worth = Total Sales/Net Worth 0.46 0.65
Quick Ratio = (Cash + Accounts Receivable)/Current Liabilities 0.077 0.4

An analysis of financial Statements with the use of appropriate ratios and comparisons is important to investors. Financial ratios involve the comparison of various figures from the financial statement in order to gain information about a business performance and help one make an informed investment judgment regarding Barclays and Vodafone performance. Profitability ratios provide measures of profit performance that helps evaluate the periodic financial success of a business. Return on sales provides a measure of bottom line profitability. Gross margin measures the direct production cost of a business and operating margin incorporates non-production costs like selling expenses of the business. Profitability is measured using return on assets and return on sales.

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