Ratio Analysis. To this point, information conveyed by the financial statements has been used to develop a picture of the organizations fiscal status and financial operating results. As a next analytical step, generally accepted financial ratios will be calculated for the purpose of going beyond detail contained in the facility’s audited financial statements. The intent of this analysis is to gain additional detail about the fiscal status of the organization. To this end, the following area and ratios have been determined as well as their respective benchmarks:
Assignment. Your primary task is to calculate each ratio passed on financial results show on your adopted facility’s audited statements. Also, at the outset, you are to provide a solid definition of profitability in the space provided. This paragraph will serve as a foundation for the rest of your work on this assignment.
To receive credit it is essential that you show your work for each ratio. Once you’ve determined each ratio, it is important to provide an interpretative summary for each ratio in the space provided. Once all of the ratios have been calculated and interpreted, you are asked to provide a summary review of your organization’s profitability status.
I. Profitability Definition. (10 points) You definition of profitability should be comprehensive in nature and reflect an understanding of what profitability tells about an organization’s performance.
II. Profitability Ratio Analysis
a. The profitability ratio – Total Margin. Total margin or the Profit margin is calculated as a ratio of Net income to Total revenue. (5 points)
Total Margin = Total net income/Total revenue
Net operating income =
Net non-operating income =
Total net income =
Operating revenue =
Non-operating revenue =
Total revenue =
Total margin =
Total margin =
Industry average = 5.0%
Interpretation Summary. (5 points)
b. The profitability ratio – Operating Margin. The Operating margin is calculated as the ratio of Net operating income to Total operating revenue. (5 points)
Operating Margin = Net operating income/Total operating revenue
Net operating income =
Total operating revenue =
Operating margin =
Operating margin =
Industry average = 3.1%
Interpretation Summary. (5 points)
c. The profitability ratio – Return on Assets (ROA) (5 points)
ROA = Total Net income/Total assets
Total Net income =
Total assets =
ROA =
Industry Average = 4.8%
Interpretation Summary. (5 points)
d. The profitability ratio – Return on Equity (ROE) (5 points)
ROE = Total Net income/Total equity
Total Net income =
Total equity =
ROE =
Industry average = 8.0%
Interpretation Summary. (5 points)
Overall Profitability Summary. (10 points)
