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Comparative Financial Ratios Essay

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Updated: Feb 24th, 2021

Comparative ratios over several years in the annual reports help stakeholders especially the shareholders and investors to analyse the financial health of the company.

Earnings Per Share

Earnings Per Share

This shows the investors that they are earning increasing returns on their shares. The earnings per share is the company’s profit divided by the number of issued shares. This shows that the net income of the company has been increasing for it to exceed the earnings per ratio of each preceding year.

Net Income

Net Income

The increasing earnings per share have been possible to achieve due to the increasing net income of the company as shown above. This shows that the company is able to achieve increasing net income over the years despite the challenges in the external and internal environment such as high competition and changing customer tastes and preferences. This shows that the company is strategic and innovative.

Net Sales

Net Sales

The sales figures over the years have been favourable, increasing yearly. This shows that the company is able to retain its market share in the competitive environment and even increase its market share. It shows that the company has a healthy financial life as it keeps growing.

Operating Expenses

Operating Expenses

The company has had increasing operational expenses as a percentage of sales. In 2010, it was the highest at 19.7% however in 2011, the trend has been reversed and it is decreasing. It is a good sign since lower operational expenses signify higher profits.

Return on Investment

Return on Investment

The rate has been consistent over the last three years. The rate refers to the gain of investment compared to the cost of an investment. It shows the efficiency of the company investments. A company should also not take investments with lower rate of return compared to others. It is almost at 20% which is acceptable. Projects that give a positive rate of return are preferred to those with a negative rate of return.

Dividends Per Share

Dividends Per Share

The dividends paid every year are influenced by many factors such as the dividend payout policy of the bank, the liquidity of the company and future capital investments that the company is interested in. The increasing dividend payout ratio of the company is a good sign since it indicates that the company is making more profit yearly to enable it to plough back profit and pay higher dividends every preceding year. It also shows that the company does not suffer from cash flow bottlenecks.

Dividend yield rate

Dividend yield rate

The company has been experiencing an increasing rate of the dividend yield. It refers to the dividends paid divided by the share price. An increasing dividend yield is favorable to investors as it shows that the shares have been under-priced. If they buy them for speculative purposes, the probability of making high capital gains on sale of the shares is high.

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IvyPanda. "Comparative Financial Ratios." February 24, 2021. https://ivypanda.com/essays/comparative-financial-ratios/.

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IvyPanda. 2021. "Comparative Financial Ratios." February 24, 2021. https://ivypanda.com/essays/comparative-financial-ratios/.

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IvyPanda. (2021) 'Comparative Financial Ratios'. 24 February.

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