CoverGirl Cosmetics - Research Paper Example

CoverGirl Cosmetics [N a m e] Business Objectives and their Effect on the Ratios Every business has some objectives that the organization attempts to achieve. Business objectives can be defined as the aims and objectives that the organization would like to accomplish and to achieve its objectives it plans things accordingly. It is the mission of the company and its business objectives that help the management to define their strategy and plan things accordingly. Financial ratios are one of the ways to measure the performance of any organization and these ratios also reflect the objectives of the organization.

As the strategies followed by any organization would influence the financial ratios and therefore business objectives would also be reflected in the financial ratios of the organization. For instance, if an organization is expanding its business and trying to improve its profitability then the financial ratios would reflect an improvement in profit margin, operating margin as well as other ratios that are used to measure the productivity and profitability of the company. Three Important Ratios OF THE COMPANYThree most important ratios for organizations are operating margin, net profit margin and total assets turnover.

CoverGirl Cosmetics is the company selected for this report and as the company is a business unit of Procter and Gamble therefore financial statement of P&G’s beauty division has been used to calculate the financial ratios. Profit marginProfit margin calculates the profitability of a firm and it is calculated by dividing net profit of the company to its sales. Profit margin is calculated using the following ratio:Profit margin of CoverGirl Cosmetics in 2010 is 13.91%Operating MarginOperating margin is the ratio of operating income of the company to its sales.

Operating margin is calculated using the following formula:Operating of CoverGirl Cosmetics in 2010 is 18.72%Total Assets TurnoverTotal assets turnover ratio is used to analyze how an organization uses its total assets in generating revenues. Total assets turnover is calculated using the following formula:Total assets turnover ratio of CoverGirl Cosmetics in 2010 is 0.607Industry RatiosIn order to calculate the industry average ratios; two firms have been selected besides CoverGirl Cosmetics and these firms are Revlon and L’oreal.

The following table shows the important financial figures required to calculate three ratios:SalesOperating IncomeNet ProfitTotal AssetsCoverGirl$19,491 3,6482,71211,825 (PG, 72)Loreal19,495.803,056.902,239.7022494 (L’oreal, 84)Revlon1,321.40199.8327.31,086.70 (Revlon, F5)Industry Average$13,436 $2,302 $1,760 $11,802 Because there are only three firms selected for this report therefore the industry average has been calculated using the financial statements of these three firms.Profit Margin of firms in the industry:The profit margins of all these firms as well as industry average are as follows:Profit MarginCoverGirl13.

91%Loreal11.49%Revlon24.77%Industry Average13.10%It shows that the profit margin of Revlon is the highest and the profit margin of CoverGirl is close to industry average. Operating profit Margin of firms in the industry:Operating profit margins of the firms in the industry along with the industry average are as follows:Operating IncomeCoverGirl18.72%Loreal15.68%Revlon15.12%Industry Average17.13%It shows that the operating margin of CoverGirl is the highest and the operating margin of other two firms is below the industry average.

Assets turnover of firms in the industry:Total assets turnover of the firms in the industry have been calculated in the following table:Assets TurnoverCoverGirl 0.607 Loreal 1.154 Revlon 0.822 Industry Average 0.878 It shows that the total assets turnover of L’oreal is the highest however the ratio of CoverGirl is below the industry average.Works CitedRevlon. Annual Report. 2010. 29 Jan. 2012 L’oreal. Annual Report. 2010. 29 Jan. 2012 PG. Annual Report. 2011. 29 Jan. 2012