Industry Averages and Financial Ratios Paper Essay
Industry Averages and Financial Ratios Paper Connie Addison, Christine Cocker, Kimberly Guy, Felicia Lombard, and Shakable woods FIN 370 January 12, 2015 Shambled Pete Industry Averages and Financial Ratios Industry averages and financial ratio reports determine the financial health of an organization. Solvent, efficiency, and profitability are compared by key financial indicators and ratios that measure several companies within the same industry. The publicly traded company chosen by Team A is Complexion. “The largest publicly traded international oil and gas company in the world.
Complexion makes products hat drive modern transportation, power cities, lubricate industry, and provide petrochemical building blocks that lead to thousands of consumer goods” (Complexion, 2013-2015). In this paper, Team A will analyze the industry static and financial ratios of Complexion. Critically adopt lean principles to create a more efficient system. Discuss what a Just-Len-Time inventory system would have if adopted. Compare the ratios for Complexion with the appropriate industry ratios shown in the D&B Report.
SIC Code of Classification The Standard Classification Code (SIC) was created in 1937 as four digit codes the overspent assigns to all U. S. Companies to help identify the primary establishment. “These codes were developed to promote the presentation, collection, and analysis of
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LIFO, meaning last in, first out, is an inventory system in which goods that are produced last are used first. LIFO is a very common accounting method that many gas and oil industry owners have used over time. Most companies use the LIFO inventory system FIN 370 Week 2 Industry Averages and Financial Ratios Paper Final Draft By Christine-Cocker Exxon Mobile switched to the Just in time inventory, it’s possible that Exxon Mobile could come up short on their inventory. Just in time inventory is used to reduce cost by only purchasing inventory when needed.
Since gas and oil is such a huge necessity for consumers, the Just time inventory method would not be beneficial to Exxon Mobile (Stock Analysis on Net, 2015). Key Financial Ratios for Complexion According to Farley (201 5), “financial ratios are defined as a financial analysis comparison in which certain financial statement items are divided by one another to veal their logical interrelationships. ” Financial ratios can be classified to reveal movements in profitability, solvency, and efficiency ratios. “Solvency ratios measure a company’s ability to pay its debt and other obligations. Profitability ratios exhibit the manner in which a business has fulfilled its operational point of view. Efficiency ratios are normally utilized to examine how a business internally uses its assets and liabilities (Investigated, 2015). The cart below acknowledges some key financial ratio for each of the previous mentioned categories for Complexion. All of these ratios have been computed and derived from annual information for the 2010- 2011 fiscal years. Solvency Ratios Formula 2010 2011 Quick Ratio Liquid Assets/ Current Liabilities 0. 4 Current Ratio Current Assets/ Current Liabilities 0. 94 Current Liabilities/elementary Ratio Current Liabilities/ Inventory 482. 68 51 5. 87 Efficiency Ratios Collection Period (Days) 365/ Accounts Receivable Turnover 28. 24 Assets/ Sales Total Assets/ Revenue 0. 82 0. 71 Accounts Payable/ Sales Accounts Payable/ Revenue 0. 91 0. 79 Profitability Return on Sales BIT/ Revenue 13. 82 15. 06 Return on Assets Net Income/ Average Total Assets 11. 37 12. 96 Return on Net Worth Net Income/ Shareholder’s Equity 23. 67 27. 6 Exxon Mobiles Performance Comparison to Industry Averages The Dun & Broadsheet Key Business Ratios data set for 2911 Refining Petroleum had a sample of 24 in 2010 and a sample of 31 in 2011 to help compare Oxen’s ratios to its competitors. This data set is divided into three categories, this paper compares only three ratios for each category; Solvency Ratios: Quick Ratio, Current Ratio, and Current Liabilities to Inventory Ratio; Efficiency Ratios: Collection Period Ratio, Assets o Sales Ratio, and Accounts Payable to Sales Ratio; Profitability Ratios: Return on Sales Ratio, Return on Assets, and Return on Net Worth.
Solvency Ratios Analysis The quick ratio for Exxon in 2010 and 2011 are 0. 64 times, which falls between the median and lower range of the industry averages on the D & B chart for both years. This shows that Complexion Corporation to be among the average in its industry, therefore it will be a less risky investment. The current ratio in 2010 and 2011 is 0. 94 times, in which 2010 falls in the lower range and 2011 falls between the median and lower range of the industry averages. This explains that in 2010 and 2011 Exxon only liabilities to inventory ratio illustrates “how much a company depends on its inventory to help pay its debt”.
As the above chart shows, Oxen’s current liabilities to inventory ratio for 2010 is 482. 68% and for 2011 is 515. 87%, which falls on the lower range of industry averages on the D & B chart. This reveals that Exxon does not have to depend on its inventory to help pay its debts. (Creditmanagementworld. Com, 2006-2015). Efficiency Ratios Analysis “Collection period ratio is used in analyzing how fast a business can increase its cash supplies. Oxen’s collection period ratio for 2010 is 28. 24 days and 2011 is 26. 60 days.
When comparing this ratio to the industry averages on the D & B chart, Exxon falls between the median and lower ranges. This informs potential investors that Exxon is able to collect on its receivables within 30 days of its initial receipt. The assets to sales ratio for Exxon in 2010 is 0. 82 and 0. 71 in 2011. This ratio is very low compared to the industry averages, which in term means that Exxon is” selling more than it can safely fulfill by its assets. ” The accounts payable to sales ratio for Exxon is . 91 in 2010 and 0. 79 in 2011.
These two ratios fall in the upper range of the D & B chart, this is bad for Exxon because it states that Exxon might be using its suppliers to help fund the operations during this time period (Creditmanagementworld. Com, 2006-2015). Profitability Ratio Analysis The return on sales (Profit Margin) ratio in 2010 is 13. 82% and in 2011 is 15. 06%, for Exxon. This ratio when compared to its industry averages lies in the upper range on the D & B chart. This determines that Exxon is “better prepared to handle any downtrends brought upon by adverse conditions.