Manage Discussion Entry on Equity Ratios

Manage Discussion Entry on Equity Ratios

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Manage Discussion Entry on Equity Ratios

1. Malek Qandil

Dec 3, 2019Dec 3 at 2:21pm

Manage Discussion Entry

I chose the organization called QWEST CORP and the competitor was AT&T INC.  Comparing Qwest with it’s competitor it did not look like it was doing to well. Their Debt/Equity Ratio was .59, when At&t was .84.  In this metric, it seems to be better performing because it has less debt to equity and at&t has more debt.  At the same time the current ratio is being beaten by at&t. Qwest at a .98 and at&t was at a .74. Qwest is a really small organization and it looks like they are still growing in business. Honestly, I never even knew an organization called qwest existed in the telecom industry until today. Which is pretty weird for me, since I know all about the telecom industry since it is a field that I typically deal with. It seems like it still has a lot of work to do in order to get where they want to .  Qwest has a lot of learning to do and a lot development that they need to put into their network. They need to figure out a strategy that can get them to an equal playing field as At&t or their other competitor Verizon.

2. Carrie Register

Dec 8, 2019Dec 8 at 8:37pm

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The two companies I chose are Raytheon and Lockheed Martin.  Both companies are of the Aerospace and Defense industry.  The analysts for MSN Money determined that both company’s stock are considered a “buy” option (MSNMoney, 2019).  I utilized the debt to equity ratio for financial condition and the return on equity ratio for management effectiveness.

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Debt to equity ratio measures the proportion of capital provided by creditors (Byrd, Hickman, & McPherson, 2013).  The higher the ratio, typically greater than 2.00, the riskier the scenario for the investor in the company as it can mean that a company may have a difficult time paying back its creditors when a debt to equity ratio is high (Kenton & Hayes, 2019).  Raytheon’s debt to equity ratio is 0.33 and Lockheed Martin’s is 3.25.  The industry the companies are in could impact whether or not it is normal for a company to have a higher debt to equity ratio, however, based on the two companies I compared, Raytheon is in a better position in this area.

“Return on equity measures the profits accruing to shareholders per dollars of contributed equity” (Byrd, Hickman, & McPherson, 2013).  This ratio can help investors see if they are getting a good return for their money.  When looking at ROE, one would assume that Lockheed Martin is winning in this area vs. Raytheon.  Raytheon’s ROE is 27.00, Lockheed Martin’s is 245.74, and the industry average is 24.31.  Based on these numbers alone, Raytheon is doing well as compared to the industry, however, it is lagging behind Lockheed Martin.  However, sometimes ROE can be artificially influenced with higher debt financing, or share repurchases (CFI, 2019).  One would need to dig deeper to determine what is influencing both company’s ROE and ensure each company is a good risk as an investment.

3. Malek Qandil

Dec 3, 2019Dec 3 at 10:28am

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“As pointed out earlier, the endless possibilities make an exhaustive study of ratio analysis impossible.” (Byrd, 2013, 11.3) Ratio analysis has many different possibilities which can be difficult to understand which goes to which for the future. Since the future is unpredictable ratio analysis is faced with some tough critics. As much as one tries to calculate for the future. The future is never guaranteed so one must try to prepare, but one may never know what happens.  Another thing that ratio analysis may not account for is inflation in the market. With inflation, it is pretty hard to predict what is coming because prices rise and inflation may just happen. That is also unpredictable.

The same way demand may rise or may fall depending on the trend. Some things may rise and something may fall. Ratio analysis is defiantly helpful to be able to prepare for the future and for things to come, but I would not put my heart and soul into it because the future is so unpredictable. As an organization we must prepare for the worst and continue to pivot as needed. We cannot put all of our eggs into ratio analysis or else we will fail. I calculated liquidity, profitability and an efficiency ratio for TMUS.  For liquidity, i used the current ratio which is assets over liabilities and got an answer of .81. For a profitability ratio i used the net profit margin which uses net income over revenue and got an answer of .067. Lastly, for efficiency ratio i used the assets turn over which is revenue over total assets.  Which i got an answer of .598.

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4.Samantha Huebscher

TuesdayDec 10 at 2:57pm

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Some pitfalls of using financial ratios to determine a company’s financial health may be the lack of comparability between companies, no indication for the cause of changes, and the fact that financial ratios are based on book value (Mohr, 2017). We often compare financial ratios to the industry averages to determine the financial success or stability of a company. However, the industry average can be swayed by companies who are not performing so well. By comparing financial ratios to companies that are not performing and those that are, a company can analyze their financial health based on real comparisons.

When a financial ratio changes drastically from one year to the next, it only shows the numerical change and does not display the reason for this change. A ratio change could be the cause of something as minor as employee inexperience within the company to reports of consumer dissatisfaction among products that the company is producing. Without understanding the cause of ratio changes, it is difficult to understand the future and financial health of an organization. In addition to these existing pitfalls, financial ratios are also based on book value, which is based on historical data and does not reflect the real-time value of the company. For example, assets lose value and new ones may be purchased through out the year. So, while financial ratios are a good guide to understanding the financial health of an organization, they do not tell the full story.

Mohr, A. (2017, November 21). What Are Some of the Problems Associated With Using Financial Ratios? Chron. Retrieved from https://smallbusiness.chron.com/problems-associated-using-financial-ratios-3979.html.

Manage Discussion Entry on Equity Ratios

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