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Sapm Dupont

The document compares the financial ratios of East Over Co. and South Ampton Corporation. It finds that: 1) East Over Co. has a lower tax burden ratio, interest burden ratio, and higher return on sales, asset turnover, leverage ratio, and return on equity compared to South Ampton Corporation. This indicates that East Over Co. is more profitable and efficient at converting its assets to sales. 2) Specifically, South Ampton Corporation has a higher interest burden because it has more debt. East Over Co. also has better returns through higher operating profits and more efficient use of its assets. 3) In conclusion, East Over Co. provides better returns to its shareholders through higher profitability, lower

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35 views3 pages

Sapm Dupont

The document compares the financial ratios of East Over Co. and South Ampton Corporation. It finds that: 1) East Over Co. has a lower tax burden ratio, interest burden ratio, and higher return on sales, asset turnover, leverage ratio, and return on equity compared to South Ampton Corporation. This indicates that East Over Co. is more profitable and efficient at converting its assets to sales. 2) Specifically, South Ampton Corporation has a higher interest burden because it has more debt. East Over Co. also has better returns through higher operating profits and more efficient use of its assets. 3) In conclusion, East Over Co. provides better returns to its shareholders through higher profitability, lower

Uploaded by

sheetal_sush
Copyright
© Attribution Non-Commercial (BY-NC)
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Download as DOCX, PDF, TXT or read online on Scribd
Download as docx, pdf, or txt
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7)

Net Pr ofits Pr etax Pr ofits EBIT Sales Assets


ROE  x x x x
Pr etax Pr ofits EBIT Sales Assets Equity

(1) Tax burden ratio


(2) Interest burden ratio
(3) Operating profit margin or, Return on Sales (ROS)
(4) Asset turnover
(5) Leverage ratio

  RATIOS
Return On Equity (ROE) 0.101 South
0.077
East Over Ampton
  Co. Corporation
Tax burden ratio 0.656 0.664 A)
Interest burden ratioin %
Difference 0.754 0.944
Taxonburden
Return ratio
Sales (ROS) 1 0.107 0.080
Interest
Asset burden ratio
turnover 19 0.896 0.852
Return ratio
Leverage on Sales (ROS) 2.72.138 1.802
Asset turnover 4.4
Leverage ratio 33.6
Return On Equity (ROE) 2.4

B)

Tax burden Ratio

It reflects both the government’s tax code and the policies pursued by the firm in trying to
minimize its tax burden. We can see that Tax burden for both company’s are almost equal.
Here we can infer that the government tax code and policies persued by both the firms is to
minimize its tax burden.
Interest burden ratio
Interest burden ratio reflects the interest paid on debt borrowed by firms.Here we can see
that South Ampton Corporation. paying more than East Over Co. , This shows that South
Ampton Corporation..has interest burden because it has borrowed more debt than East Over
Co. and they are paying more interest on their borrowing.

Return on Sales (ROS)


Return on sales is the operating profit earned per dollar of sales. Here we can see that the
ROS of East Over Co. is better than South Ampton Corporation..and this mainly because of
the earning before interest and tax. EBIT of East Over Co. is better than that of South.

Asset turnover
This ratio measures sales per dollar of the firm’s money tied up in fixed assets, In other
word’s It shows the efficiency of the firm to use its assets to convert it to sales. Here we can
see that East Over Co. is using its assets efficiently than South.Ampton Corporation.to
convert its assets to sales.

Leverage ratio
In the industry, every company had debt component in its capital structure. This shows that
industry is open to both ownership participation and lenders. The company has highest debt-
equity ratio in the industry throughout the year. It reflects that company is saving a lot of
money being taxed but at the same time it also possesses more risk to its shareholders. This
may be part of financing policy of the company. It indicates Relationship between the net
worth of the company and its external liabilities.Here East Over Co. has got better leverage
than South Ampton Corporation. We also know that financial leverage will help the company
to increase its ROE.
ROE

It measures the total earning available to shareholders of the company per share held.Here
East Over Co. is giving more ROE than South Ampton Corporation.Here the shareholder’s
of East Over Co. will be earning more ROE than that of South Ampton Corporation.

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