Financial Management Essay
Valuation of the both brands cannot be established in just their current Asset/Debt ratio, other factors will determine an investor’s choice.
Determine what profitability ratios can tell you about a company’s performance and how that information would influence investing decisions. Profitability ratios measure both the profit margins that the company is able to generate as well as the returns it provides on the physical facilities and funds it employs. Return ratios are net profit ratios, while margin ratios compare gross profit, operating profit, pretax profit and net profit to revenue (Gopinathan, 2009).
Additionally, Investopedia suggests that profitability ratios are a class of financial metrics that businesses use to gage and generate earnings as compared to its expenses and other relevant costs incurred during a specific period. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well (Investopedia). For instance, some industries experience seasonality in their operations. The retail industry, for example, typically experiences higher revenues and earnings for the Christmas season. Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with its first-quarter profit margin.