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Financial ratio analysis - Essay Example

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Summary
The ratios inspect the sufficiency of the company’s working capital. The ratios are computed as
From the computation of the leverage ratios, it is clear that…
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Financial ratio analysis
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Finance and accounting [Insert al affiliation] The two companies that I have chosen for the Calculation of the financial ratios areQatar Oman and Qatar Cinema Company respectively. The calculation and the comparison are as below.
Leverage ratios
These are ratios that measure the extent to which a firm/company finances its investments through borrowing.
Type of ratio
Calculation (Qatar Oman company )
Calculation (Qatar Cinema Company )
Debt ratio

= 3.58%
= 18.96%
Liquidity ratios
These are ratios that are used to calculate the company’s ability to meet short-term obligations as they fall due. The ratios inspect the sufficiency of the company’s working capital. The ratios are computed as
Type of ratio
Calculation (Qatar Oman company)
Calculation (Qatar Cinema Company)
Current ratio
= 11.17
= 0.61
Profitability ratios
These are ratios that are used to calculate the firm’s earnings pursuant to the sales level, owner’s investment, and share value.
Type of ratio
Calculation (Qatar Oman company)
Calculation (Qatar Cinema Company)
Return on Equity

= 5.94%
= 8%
Return on capital employed
= 5.94%
= 8%
Return on investment
=5.73%
=6.48%
Efficiency ratios
These are ratios that are used to measure the way the company has utilized it resources in the generation of sales.
Type of ratio
Calculation (Qatar Oman company)
Calculation (Qatar Cinema Company)
Total assets turnover
= 0.076
=0.0856
Market value ratios
These are ratios that measure the market perception about the firm’s future prospects.
Type of ratio
Calculation (Qatar Oman company)
Calculation (Qatar Cinema Company)
Earnings per share
= 0.629 earnings per share
= 1.8 earnings per share
Comparison between Qatar Oman company and Qatar Cinema Company
From the computation of the leverage ratios, it is clear that Qatar Cinema Company has the highest debt ratio of 18.96% as compared to Qatar Oman Company that has 3.58%. This exemplifies that Qatar Cinema Company is vulnerable financial distress. From the liquidity ratio, it is clear that Qatar Oman Company is proficient of paying its debts as compared to Qatar Cinema (Tamari, 2012). The Qatar Oman Company has a liquidity ratio of 11.17 as compared to Qatar Cinema Company, which has 0.61. The efficiency ratio stipulates that both banks have the same utility of resources to generate annual sales. Though the profitability ratios show that Qatar Cinema Company generates more returns on equity than Qatar Oman Company, the return on equity of Qatar Cinema is 8% while that of Qatar Oman is 5.94%. Additionally, the return on investment of Qatar Cinema is 6.48%while that of Qatar Oman is 5.73%. It is therefore, evident that Qatar Cinema Company is trading at a profit and it has unforeseen stable operation in the industry.
In a nutshell, it is clear that indeed Qatar Cinema Company is better than Qatar Cinema. Investors who are risk averse are advised to invest in Qatar Cinema Company as they will not be disappointed.
References
Tamari, M. (2012). Financial ratios: Analysis and prediction. London: P. Elek.
[Online] available at: http://www.cpaclass.com/fsa/ratio-01a.htm Read More
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