The Companys Profitability Ratios - Research Proposal Example

The paper 'The Company’s Profitability Ratios' is a perfect example of a finance and accounting research proposal. The company’s liquidity ratios, current and quick ratios have been decreasing throughout the period. The company shows a lower liquidity ratio than the industry average; hence, it is less liquid than the average. The business is, therefore, less solvent when compared to the industry average.The company’s profitability ratios (net margin, gross margin, and return on capital employed) also have a downward trend, with the ratios settling at a lower value than the industry average.

The company is, therefore, less profitable when compared to the industry average, indicating its lower ability to generate earnings,The company’s gearing ratio has been increasing to a value higher than the industry average. This indicates an increase in the company’s financial leverage, an increase in equity funds to finance its operations. According to the company’s asset management ratios (asset turnover, stock turnover, payable days, and receivable days), there is a decreasing turnover ratio trend.

The ratios are lower than the industry average, showing that the company is less efficient in utilizing its assets to generate revenue when compared with the industry. Further, the payable and receivable days ratios indicate an increasing trend, but the ratios are more than the industry average; this shows that the company is less efficient in managing its cash flows.The company indicates lower performances from numerous financial ratios. Liquidity ratios are decreasing over the period showing that the company’s profitability is reducing.

It should therefore restructure its operating practices so that its performance can be increased.Further, there is a decrease in the company's profitability, most probably from its high operating costs. The decrease in the profitability ratios evidences this. The company should change its operating practices to reduce its operating costs to increase its profitability.