The financial ratios of Rolls Royce and its major competitors Essay

The financial ratios of Rolls Royce and its major competitors - Essay ExampleAccording to the research findings every business, no proceeds small or large, constantly evaluates its corporations performance by comparing it with competitors, industry and its own past performance. In order to do so, businesses not only look at the figures of sales, profit and costs but also prepare other criterion for measuring performance which helps in reading between the lines of financial statements. The most widely known and reliable approach of evaluating a firms performance is by calculating and comparing its financial ratios. The underlying reason for doing so is because this information is understandable for every person who has some level of knowledge of financial concepts. By comparing the ratios with the competitor of the firm or with its past performance, a clear idea can be obtained. For this purpose, the company which has been chosen is Roll Royce. It is a diversified company having it s operations in the guinea pig of aerospace, nuclear market, civil defense and marine and energy. It was founded in 1971 and has its headquarters in London, United Kingdom. Activity Ratio also called as Liquidity Ratio helps a firm in de boundining the ability of a firm to meet its current liabilities. Activity Ratio is that investment or cash which is used to honorarium off the short term debts as well as expenses. Current Ratio is determines whether the firm has enough liquidity to pay off its expenses and short term debt. Theoretically, if current ratio is around 2.00 then it is considered as the most preferable. This ratio possesses huge consideration because if this ratio is declining it means that the cash position of the company is acquire eroded. For that reason, the quickest way which can increase cash is increasing the amount of sales. Quick Ratio This ratio is also known as Acid exam Ratio. This ratio determines that if inventories are excluded, then is the firm able to pay off its short term expenses? Quick ratio is usually preferable if it is 1 or near to 1. If this number is decreasing, then it means that enough sales are not being generated to pay off the short term debt or daylight to day expenses. In order to improve such situation, intervention regarding Quick Cash Management is required. Net Working Capital to Sales This ratio determines the companys performance in relation to its sales, after meeting the short term obligations or liabilities, Efficiency Ratio Efficiency ratio determines the efficiency of a business or in other words, how well the business operations are conducted. These ratios determine how well and quickly the company collects its accounts receivables, how quickly the blood moves and how such(prenominal) sales are generated by the companys assets. Efficiency ratios include blood line Turnover Receivable Turnover Payable Turnover Days Inventory in hand Debtors Collection Period Creditors Payment Period Inventory Tur nover Inventory turnover ratio determines the total turnovers of take stock. This ratio determines the efficiency of inventory management. If inventory turnover ratio is higher, then it means that firm is really efficient in rolling over its inventory. However, in some cases high inventory turnover ratio also means that firm doesnt have enough inventories on its hand and therefore losing its sales.