Financial Analysis Assignment Example | Topics and Well Written Essays - 750 words - 2

Financial Analysis - Assignment Example Products that are used on a daily basis enhance the asset turnover. A supermarket has consumables products that are consumed on a daily basis that is why it will have the highest asset turnover followed by a steel company because of constructions. Pharmaceutical retailer will depend on health state of its client. The current lifestyle has impacted the health status of people, thus increase in pharmaceutical services is on the rise. However, asset turnover is concerned with the revenue, not profit. That being the case then musical instrument might have the highest profit than the others. Sales margin is also the gross margin. It is the revenue a firm earns after making sales. It should be known that sales margin is inclusive of the operating expenses thus it cannot be used to determine the profitability of a firm. A supermarket will have the lowest sales margin because a small mark-up is attached to the price it bought for the goods as a profit. The idea to add a small mark-up is the competitiveness of supermarkets and high sales rate. The prices of Tesco and Sainsbury’s supermarket are very competitive which attract consumers. A musical instrument retailer will have the highest sales margin this is because the sale of musical instruments is slow. To cover up the cost of operating expenses, the retailer will have to add markup that settle the income and operating expenses. Return on Equity (ROE) is a financial measure to determine how efficient a firm is in maximizing the return to the shareholders’ equity. A firm needs to have a high ROE to lure other investors. ROE has three components namely; return on sales, asset turnover, and financial leverage. In 1995, Chrysler had ROE of 20% while Ford had 8%. The difference can be explained by the three components. Firstly, it seems that Ford had low asset turnover meaning the sales in 1995 was low for its automobile. Secondly, it had a low return on sales. The profit generated