Industry Average and Financial ratio paper

Industry Average and Financial ratio paper

  • Submitted By: vanvader
  • Date Submitted: 02/02/2015 4:37 PM
  • Category: Business
  • Words: 870
  • Page: 4

Industry Averages and Ratios
They measure how successful a company is by using many tool and the fact that it is not solely based on how much revenue it brings in. Many components of performance can impact the figures rather it is in a positive way or a negative way. To better understand, let’s say that millions in earnings does not always result in revenue if a particular company has acquired too much long-term debt over that same period of time. There are a number of other ways to figure out performance which can be calculated by comparing data that is collected to obtain ratios that display different parts of performance.

How is Wal-Mart Compared?
There are a lot of ways to determine a company’s financial health that analyst use. One of those ways is to use a financial ratio analysis. This particular tool is used to measure how solvent, efficient and profitable a company is. The Standard Industrial Classification or the SIC for a company is found on the website for the Department of Labor. When trying to find the SIC, companies are categorized by division, major group and finally, by industry. As an example, Wal-Mart as a categorized company would be under retail trade division, general merchandise store for their major group and the industry group category would be department store. The code in the SIC for Wal-Mart would be 5311.

Debt equity ratio which is in some circles is known as the solvency ratio. This is a tool used by investors to predict whether a company will or will not be able to handle all of its long-term obligations. This helps investors determine whether a company is worth investing in and determine if it is financially healthy. Using the solvency ratio, an investor can analyze how fast the shares of a company grows. In the case of Wal-Mart, the debt equity ratio is improved from .75 to .71 from 2012-2013 but in 2014 it deteriorated back to .74.

The financial reports that are compared to the...

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