Interpretation of ratios

Profitability ratio

This ratio shows how much a firm making a profit from the sale and investment from its shareholder.

Higher the ratios mean higher the profit margin.

Net profit margin

This ratio tells us how much a firm making a profit on sales.

For Empire company this ratio increasing from the year 2016 to 2020 which shows that company is making more profit as compared to the previous years while on the other side Metro company profit margin is increasing till 2018 but suddenly decreased in 2019 which means that the company is going in less profit in that years as compared to the previous years.

Return on Equity

This ratio tell us that how much company is making profit on the investment by its shareholders.

Higher the ratio means higher the returns for investment.

In the 2016 Empire company is in loss showing a -58% loss but it increased 4.3% to 14% gradually which shows that company is going on higher profit and making more return on the investment.

For Metro company, ROE is greater in 2015 to 2018 but decreased in 2019 showing the loss on investment as compared to the previous years.

Return on Asset

This ratio tells us how much the company using its resources to generate the profit.

A higher ratio means the best use of resources in order to generate profit.

As like ROE Empire company is in loss according to the ROA ratio in the 2016 year but it goes on profit in 2020 to 18.30% which means that company is going on the establishment and utilizing the resources to generate the profit.

Metro company also making less profit but its overall performance is better all year as compared to Empire company.

Receivable turnover ratio ratio

This ratio tells us how much the company selling its inventories and receive money back from the account receivables.

In 2019 the Empire company is collecting money well as compared to the year 2020. It means that the collection cycle is better in 2019 as compared to 2020.

And the same case applies to the metro company. Its collection period is also better in 2019 rather 2018.

Inventory turnover.

This shows us how the company converting its inventories into sales.

The days represent the cycle of ratio.

Empire company turnover is greater in 2019 as compared to 2020. Metro company is also greater in 2018 as compared to 2019.

Its means both companies going well as compared to previous yearsin terms of inventories.

Payable turnover ratio.

This ratio shows that in how many days company paying its debt. If the ratio is high then its mean the company is going well that company pays very late to its creditors.

So the credit worthiness of Empire company is good in 2020 as compared to 2019 while Metro company is well in 2018.

Liquidity Ratios

These ratios tell us that how a firm converting its assets into cash.

it includes the current ratio and quick ratio.

Empire company current ratio is better in 2019 as compared to 2019 while this ratio is better in 2018 for metro company as compared to 2019.

Its means that companies are meeting their short terms obligations with current assets efficiently.

Asset Utilization Ratio

These ratios tell about the leverage of a company that how much its assets are using to pay debts.

If the ratio is high then it mean that company is on risk and paying its most of the parts on debts.

Less the ratio means that most of part-funded by equity which is good for investors.

Empire company leverage is better in 2019 as it is 40% on debt on the other hand Metro company is better in 2019 as compared to 2018 as it is on 24% debts.

Question

oComments on therelative performanceof the companies.

oBONUS:Both companies do not derive 100% of their business from food retailing, Metro has as a large pharmacy operation, and Empire has a real estate operation.Brieflydiscuss how this may or may not allow a direct comparison.