Financial ratio analysis is one of the ways of analyzing the financial performance of an organization using a relative magnitude of selected numerical values. The approach is crucial since it gives a snapshot of the financial condition of the firm (Easton, and Sommers, 2018). The report, in this case, entails ratio analysis of APIX Printing Inc. and the other two firms in the same industry. These are SGK LLC, and Lee Enterprises Inc. APIX Printing Inc. is one of the largest privately-owned printing firms in the US. The firm produces a wide range of products, such as journals, publications, and magazines, among others. According to the financial information of the year 2013, the company made sales of $450 million from all its three sectors of operation. On the other hand, SGK LLC produces newspapers, magazines, and promotional materials. The annual sales of the company were $442 million in the year 2013. Conversely, Lee Enterprises Inc. produces over 300 different types of publications across the country and has over 1.3 million daily readers of the papers. The value of the revenues in the year 2013 was $674 million. The report, in this case, entails ratio analyses for the years 2012 and 2013 and the recommendations on the trends, as well as the features of the company based on the data.
Table of Ratio Analysis
Current Ratio
The current ratio is merely the measure of the current assets of the firm divided by the value of the current liabilities and, which designates the ability of the firm to handle its financial obligations within the short term (Weygandt, and Kimmel, and Kieso, 2015). The calculation is done as follows: Current Ratio = Total Current Assets / Total Current Liabilities
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| Company | APIX | SGK LLC | Lee Inc. | |||||
| Year | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | ||
|
Current Ratio |
1.295 | 1.131 | 1.681 | 1.821 | 1.031 | 1.813 |
According to the financial information above, the value of the current ratio for the Apix in the year 2012 was 1.295 and then decreased to 1.131 in the year 2013 indicating that there were more liabilities than current assets. In SGK LLC, there was an increase from 1.681 in the year 2012 to 1.821 in 2013 showing a positive trend. Lastly, in Lee Inc., the value went up from 1.031 to 1.813 in the same period indicating effective management.
Debt-Equity Ratio
The Debt-Equity Ratio refers to the financial information, which indicates the asset value of a company in the form of debt compared to the value of assets held by the shareholders. It is hence the comparison of the value of debt to the overall equity of the company (Afonso, Baxa, and Slavík, 2018). The calculation is as merely done as follows: Debt-Equity Ratio = [Total Liabilities/Shareholder’s Equity].
| Company | APIX | SGK LLC | Lee Inc. | |||||
| Year | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | ||
| Debt-Equity Ratio | 1.757 | 0.8641 | 0.829 | 0.7161 | (10.26) | (5.86) |
Concerning the above information of debt-to-equity ratio, it is evident that Apix did well in the year 2012 to the year 2013. There was a decline in the value of debts to equity from 1.757 to 0.8641 due to better management of the capital structure. In SGK LLC, the value of the debt-to-equity ratio was below 1.00, indicating that the value of debt was lower than that of equity. The trend shows better utilization of resources since there was a decline from 0.829 to 0.7161 in the year 2012 to the year 2013. Lastly, Lee Inc. had a value of (10.26) in the year 2012 and (5.86) in the year 2013. There was a decline, but the values were negative.
Gross Profit Margin
Gross profit margin refers to a financial unit of measurement, which indicates the value of the income after deduction of the value of the costs of goods. It is hence a measure of profitability of the company. It helps in planning for the value of prices and the units of profit margins in the company (Collier, 2015). The calculation is done as follows: Gross Profit Margin = Gross Profit/Revenue
| Company | APIX | SGK LLC | Lee Inc. | |||||
| Year | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | ||
| Gross Profit Margin | 0.157 or 15.7% | 0.217 or 21.7% | 0.34 or 34% | 0.389 or 38.9% | 0.927 or 92.7% | 0.936 or 93.6% |
The analysis of the gross profit margin in the three companies shows different trends. There is an increasing trend of profitability in the year 2012 to the year 2013. In Apix Company, the value of the gross profit margin was least which translated to 15.7% and increased to 21.7% in the year 2013. In SGK LLC, the value was 34% and went up to 38.9% in the year 2013 showing a slight change. Lastly, in Lee Inc., the value was 92.7% and went up by around 1% in the year 2013. The company with the highest profit margin was Lee Inc.
Net Profit Margin Ratio
Net profit margin is a financial metric which indicates the value of profitability in a company. It is reached through the calculation of the net profit as the percentage of the total revenue of the company. The formula is hence: Net Profit Margin = Net Income/Revenue
| Company | APIX | SGK LLC | Lee Inc. | |||||
| Year | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | ||
| Net Profit Margin | 0.0137 or 1.37 % | 0.0583 or 5.83 % | (0.051) or -5.1% | 0.015 or 1.5% | (0.0235) or -2.35% | (0.1161) or -11.61% |
According to the above data, the Net Profit margin is based on the after-tax income of the companies. In the year 2012, the value for the net profit margin in Apix Company was 1.37% while in the year 2013 the value increased to 5.83%. In SGK LLC, the value went down from 5.1% to 1.5% indicating high costs of operations while in Lee Inc., the value improved by 8.3% from 2.35% to 11.61% in the year 2013. The company with the best trend was hence Lee Inc.
Return on Equity
Return on equity can be defined as a financial metric, which indicates the value of income concerning shareholders’ equity. It is hence a measure of the value of income based on the investment held by the shareholders of the company. The formula is simply Return on Equity = Net Income/Shareholder’s Equity.
| Company | APIX | SGK LLC | Lee Inc. | |||||
| Year | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | ||
| Net Profit Margin | 10.27% | 31.05% | -9.3% | 2.6% | -14.6% | -46% |
The value of the return on equity for the Apix Company in the year 2012 was 10.27% while in the year 2013 the value was 31.05%. In SGK LLC, the value was -9.3% while in the year 2013 it went up to 2.6%. In Lee Inc., the value was -14.6% and went down to -46 in the year 2013.
Conclusion
About the above financial ratios, it is evident that the company with the best value of current ratio was Lee Inc. since the value went up from 1.031 to 1.813 in the year 2012 to 2013 period indicting effective management. The firm with the best profitability was also Lee Inc. due to the fact that the company has sound management. This would, therefore, make Lee Inc. be the most competitive to the investors in the sector compared to Apix Company and the SGK LLC. The shortcomings of financial ratios include the use of past data and differences in the model of reporting hence limitation.
References
Afonso, A., Baxa, J., & Slavík, M. (2018). Fiscal developments and financial stress: a threshold VAR analysis. Empirical Economics , 54 (2), 395-423.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making . John Wiley & Sons.
Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
Liang, D., Lu, C. C., Tsai, C. F., & Shih, G. A. (2016). Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study. European Journal of Operational Research , 252 (2), 561-572.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting . John Wiley & Sons.
White, G. L., Sondh, A. C., & Fried, D. (2005). Analysis of Financial Statement. Analysis .
