Introduction:In this report, we compare thefinancial ratios and percentages of five leading American based companies thatbelong to the different industries in order to compare their financial standingand their performance in the world market. All of the companies deal businessat international level and run their operations for many years. The companythat we select for this analysis include Starbucks, Volkswagen, Cisco, Toyota,and Nike.
Three-year data from the year 2015 to 2017 was used but one companythat is Volkswagen will not still publish its 2017 report so 2014-2016 data isused of it for the comparison.ComparisonThe comparison of the companies isdone on the bases of various ratios.1. RevenueRevenue growth is the growth in therevenue of a company that is due to various reasons, either the increased salesof the existing products in the existing markets or the entry to new markets orthe introduction of more products in the existing markets or new market. The revenue growth for the Starbucksis increasing but the rate of increase has decreased and there might be otherreasons for the reduction in the growth rate. These might be the economicconditions or the slow reduction of the increase caused by the introduction ofthe new product. For the Toyota Company there is areduction in the growth rate of the revenue for the year 2015 and 2016 but inthe year 2017 the growth rate is negative and there is reduction in the sales.This is because there is global reduction in the sale of those cars that usegasoline engines and globally there is increase in the sale of the electric andgreen vehicles.
There might be other reasons including the pulling back of somemodels from market. (O’Connor, 2017)The Volkswagen is a car manufacturerand is mostly operates in American and European markets. Its sales hadincreased from 2014 to 2015 and then reduced in 2016.
The change in the rate ofthe increase is fluctuating and there are different reasons for the changes inthe revenue growth as the consumer spending patterns change and the tax rateschange which impact the prices of the cars. Nike is a sports wear goodsproduction company and has lot products from foot wears to caps and shirts andsports shorts. It is a multinational brand and has many different products inthe markets. Its sales growth pattern is average and there is fluctuation inthe sales of the company which is normal and there are no specific trends.
Cisco which has normal and averagesales. The revenue growth shows a specific trend and shows a normal variation. Outof all these five companies, the revenue growth of the Nike is the bestcomparing to the other companies, as its growth was more stable and positive. 2. Liquidity:The liquidity ratio is used tomeasure the company ability and efficiency to pay its debt obligations and alsomeasures its margin of the safety. It is used to compare companies andindustries in order to examine the strength of the company’s strategies incomparison of their competitors in the market this is useful to set thebenchmarks goals. And also use to compare the company performance from previousyears. The ratio greater than 1 is considered more favourable but much high isnot good as it shows that company is not allocating its resources well.
Thelower ratio indicates that the company ability to pay off its debt is not good. Current ratio Companies 2017 2016 2015 Starbucks 1.25 1.05 1.
19 Volkswagen – 0.88 0.98 Cisco 3.03 3.
16 3.23 Toyota 1.03 1.13 1.09 Nike 2.93 2.
80 2.52 The ratio of the Starbucks isincreasing each year. This shows that the company position to pay off its debtsis improving each year as the company current ratio increases constantly eachyear. The ratio of the Volkswagen company is decreasing each year thatrepresent that the company able to pay off its debt is decreasing each year andthe company is not performing well this is not a good sign for company strengthand position in the market. The ratio of the Cisco is deteriorated from theyear 2015 to 2017 this show the company ability is low to pay off its debts andif this position goes on like this the company will suffer huge losses infuture. The ratio of the Toyota company increases in 2016 but then the ratio isdecreased in 2017 this show the company is not maintaining its resourcesproperly in 2017. The ratio of the Nike is enhancing each year this show thatthe company position to pay off its debts is improving from year 2015 to 2017as the organization current ratio increases constantly each year.Out of all these five companies theliquidity ratio of the Nike company is improving most efficiently each year andthe worst position is Cisco company as their liquid position continuouslydecline that will affect the company position and also affect its ongoingbusiness concern the companies like Cisco, Volkswagen and Toyota have toimprove it’s for its better performance in future.
3. Profitability The profitabilityratios of the companies are considered as the financial indicator that will beutilized by the companies in order to assess and examine the business’s abilityand efficiency to generate the earnings as compared to their expenses and theother relevant outlays that is incurred during the specific time period. Forthese ratios, the more value is favourable as having the higher ratio relativeto the competitor’s ratioThe return on asset ratio of theStarbucks is decrease in 2016 and 2017 as compared to 2015 and Nike ratio isincreases and the profitability position of the Nike is most efficient that isbecause of its high-quality profit and high sales volume. The Volkswagen ratiois also increase but is lower than the 2014 ratio. The ratio of the Toyota andthe Cisco is decreasing that show that the company is not using its assetefficiently and as a result of this its sales and revenue reduces. The return on equity is used tomeasure the company ability to generate earning from its equity investment thehigher ratio is favourable as it shows that the company is investing its equityefficiently. The return on equity ratio of the Starbucks and the Nike isincreasing that show the good profitability position of the company as comparedto other companies. The ratio of the Toyota is decline continuously and theratio of the Volkswagen and Cisco is fluctuating that shows the companyprofitability position is not stable.
The profit margin ratio is the ratiothat tells us the profit as a ratio of the business and the ratio of the revenuethat the business generates. This ratio tells us that how much successful thebusiness is in controlling its operating expenses of the business. The profitmargin of Starbucks is decreasing slightly as this might be due to thereduction in the selling price or increase in the operating assets. The profitmargin of Toyota is falling and there is a reduction in the profit margin in2017 and is also low compared to others.
This also might be the result of theincrease in the interest expenses that have increased. Margins of Volkswagenhave a dip and faced loss in the year 2015 and has rebound to a 2% profit in2016, this margin is very low compared to the industry. The profit margin ofNike has an increasing trend and the profits of Cisco have a fluctuating trendincreasing and decreasing over the years. (gurufocus, 2017) 4. Leverage:Leverage ratio is used to measurethe company ability to pay off its long-term debts. It measures the companyfinancial leverage.
The higher debt to equity ratio is not favourable and thehigher interest coverage ratio is beneficial for the company. Companies Debt to Equity Interest Coverage 2017 2016 2015 2017 2016 2015 Starbucks 0.72 0.54 0.40 0 0 121.86 Volkswagen 1.67 1.
65 1.49 5.23 -3.
56 8.74 Cisco 0.96 0.91 0.9 13.
91 18.730 19.030 Toyota 1.75 1.78 1.79 67.
94 80.61 120.26 Nike 0.31 0.17 0.1 83.81 244.
32 151.18 The debt to equity ratio of theToyota company is favourable this show that company is utilizing low debt as itis the most expensive source of financing and reduce the company profitsbecause of high interest rate and cost. The debt to equity ratio of othercompanies are unfavourable which shows that these companies uses more debt andbecause of this they pay high interest and their profit decline.Theinterest coverage shows the company ability to pay of interest the more valueis favourable that show company has more money as compared to interest expense.The interest coverage ratio of Starbuck and Volkswagen is increasing and sfavourable whereas the ratio of the Cisco and Toyota is unfavourable and theNike ratio is unstable. 5. MarketabilityratiosThe market ratio estimates theinvestors response of purchasing the company stock.
The higher value isfavourable as it helps the company to attract more investors and maintain thecompany position in the market. The dividend yield is the returnthat is generated by the business or the earning per share compared to thevalue of the share. The yield tells us the value that the business isgenerating and return that the investor gets on the investment that theindividual has performed. The dividend yield of Starbucks is acceptable and thedividend of Volkswagen is 1% is low. The dividend yield of the Toyota is 2.96%.Nike dividend yield is also very low and that of Cisco is also acceptable. In terms of price earnings ratio, ittells us the earning potential of the share and is calculated by the divisionof the price of the share by the earnings per share.
The price earnings ratiotells us the earning potential of the share. The price earnings ratio of theStarbucks is high compared to other companies. The Volkswagen has the lowestprice earning ratio either due to the reduced price of the share or the reducedearnings. Conclusion:Out of all these five companies theliquidity ratio of the Nike company is improving most efficiently each year andthe worst position is Cisco company as their liquid position continuouslydecline that will affect the company position and also affect its ongoingbusiness concern the companies like Cisco, Volkswagen and Toyota have toimprove it’s for its better performance in future. The profitability positionof the Nike is most favourable for the investors to gain high return and showthat company manages its resources and liabilities well in order to achievehigh returns. The market position of the Starbuck is most efficient andVolkswagen is least efficient.