Unit 3 discussion responses 1 and half paragraphs each
Response to Stephanie :
Debate the benefits and pitfalls of ratio analysis, as a standalone analysis, evaluating the company’s weaknesses and strengths.
A few benefits of ratio analysis, include, that it may be utilized to express a company’s financial health. This may be done by scrutinizing the company’s past and present financial statements. Different companies may utilize different strategies of financial evaluation, that, also, includes, ratio analysis, and, that may be of complement, in addition, too.
Ratio analysis is a quantitative measure, that may help one focus on the points of interest that it finds essential , of a company, and, that may be observed, through, comparison with that company’s history. Also, it may be found useful in comparing the essential quantitative data, that other companies hold, as they compare, and/or, contrast, with an opportunity to cross-section through an industry, for it’s main standards. Discovering how those numbers compare, and, which company has been more successful, is its basic method. Although, all businesses focus upon their revenues, each business may have it’s procedures, and, through its operations, all those categories, and, their contexts, may not line up. So, it is essential to, also, utilize other metrics to encompass the ratio’s efforts, and, have a more transparent snapshot, of the current intended focus.
Evaluating one’s company’s weaknesses may be found to be of difficulty, or, of clarity, by, utilizing the differing ratios, such as, a liquidity ratio, which, measures, the company’s ability to fulfill its obligations of debt, as they are called, as an example. Profitability ratios, also, convey how well a company may generate profits from its business activity. Some, examples, of profitability ratios, are, gross margin ratios, return on equity ratios, return on assets ratios, and, profit margin ratios. Essentially, ratio analysis may mark how a company is performing over time, and, how that compares, when side-by-side.
Walmart creates a vast divide, between it’s revenues, and, those of Target. Walmart earned over 500 billion USD, last year, and, nearly the same, for the past three years, or more. Target met that by earning over 98 billion USD, last year. For, their size differences, they reach very close to one another, and, Target is slated as being the 3rd highest earning retail shopping experience, and, compared to, Walmart, which, ranks, first place, in the U.S., both of their positions are quite, fairly, simply similar. Weaknesses are found, in the difference of quality claimed, by, customers, of both businesses. Target being, slightly higher priced, and, a positive shopping experience, and, Walmart being of less cost, and, more value, and, not being a noteworthy time shopping, as their focus is on cost, primarily.
Response to Emma :
Benefits of Ratio Analysis for Amazon and Walmart:
Performance Assessment:
Ratios such as ROA and ROE can showcase Amazon’s and Walmart’s efficiency in utilizing assets and equity to generate profits. For Amazon, its focus on innovation and expanding product lines contributes to its performance, while Walmart’s emphasis on cost efficiency and economies of scale affects its ratios positively.
Comparative Analysis:
Ratios help compare Amazon’s e-commerce dominance and cloud services against industry benchmarks, while for Walmart, comparative ratios illustrate how well it competes in the retail sector. Analyzing against peers helps evaluate its market share and operational efficiency.
Trend Identification:
Over time, ratios can highlight trends, reflecting Amazon’s consistent revenue growth and ability to adapt to changing market dynamics. For Walmart, trends in ratios may showcase how its strategies evolve, such as its efforts in e-commerce to counter Amazon.
Liquidity and Solvency:
Liquidity ratios reveal Amazon’s ability to meet short-term obligations, which is crucial for its vast and dynamic operations. In contrast, solvency ratios indicate how well Walmart manages long-term debt, providing insights into its financial stability.
Pitfalls of Ratio Analysis for Amazon and Walmart:
Isolation of Variables:
Relying solely on ratios might overlook challenges related to regulatory scrutiny or controversies around labor practices, impacting the companies’ long-term sustainability.
Varying Accounting Practices:
Different accounting methods in diverse business segments can complicate ratio analysis, impacting the comparability of financial indicators for both companies.
Market Conditions:
F ratios may not fully capture external factors like changing consumer behavior or geopolitical events, affecting predictions about the companies’ future performance.
Story Evaluation:
Considering qualitative factors like Amazon’s acquisition of Whole Foods or Walmart’s response to the rise of e-commerce is crucial in evaluating a company’s strengths and weaknesses, complementing ratio analysis.
In conclusion, ratio analysis offers valuable insights. Still, a holistic understanding of a company’s strategies, industry dynamics, and qualitative factors is essential to assess its strengths and weaknesses thoroughly.
Team, C. (2023, December 7). Return on assets & roa formula. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/accounting/return-on-assets-roa-formula/
Birken, E. G. (2022, October 16). Understanding return on assets (ROA). Forbes. https://www.forbes.com/advisor/investing/roa-return-on-assets/
DePersio, G. (2022, December 6). Walmart Financial Analysis: 5 key ratios. Investopedia. https://www.investopedia.com/articles/active-tradi…
Wei, J. (2022, December 19). Amazon’s 3 key financial ratios. Investopedia. https://www.investopedia.com/articles/markets/120115/amazons-3-key-financial-ratios.asp
Bourret, S. (n.d.). 4 types of financial ratios to assess your business performance. Financial ratios offer important snapshots of your business’s financial viability. https://www.bdc.ca/en/articles-tools/money-finance/manage-finances/financial-ratios-4-ways-assess-business
Response to my original post:
Michael
Jami hi I’m Michael, I think it good that an company focus, on snapshot of a company’s financial performance in aspects such as liquidity, turnover, solvency and profitability. It’s very important to do so. If an company invested alot, of money in there company, and didn’t focus on the financial statement, balance sheet what will be the longevity of the comany, that want be long on the success of tbe company, it’s important to have full control of the financial part of business.Great Post.
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JM
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