The purpose of this study is to create an investment report which will involve a thorough analysis of the financial performance of Gillette Company. The researcher will attempt to analyse the profitability, liquidity and the solvency ratio of the company for the year 2003 and compare the same with the values reported in 2002.
This comparative analysis will set a foundation on the basis of which the researcher can identify the opportunities available to the company as well as their risk exposures. Following the identification of these factors’ strategies will be recommended to the company that are aimed towards opportunity implementation and mitigation of risk exposures.
Profitability ratio analysis of Gillette Company:
Net profit margin: Calculated by dividing the net profit by the revenue, this ratio indicates how well a company has been able to convert each dollar of revenue earned into net income (Robinson and Henry, 2012). Figure 1 given below shows that Gillette Company’s net profit margin increased from 14.3% in 2002 to 14.9% in 2003. This highlights that the company’s managers have been successful in implementing effective business strategies that are aimed towards reducing the operating and financial expenses that has greatly contributed to the augmentation in net profit margin.
Gross profit margin: This ratio is the quantifier of a company’s financial health by denoting the amount of capital remaining after the cost of goods sold by a company is deducted from the revenue generated. As is evident from figure 2 given below, indicates that Gillette’s gross profit margin increased marginally from 0.585 in 2002 to 0.599 in 2003. The values highlight the company’s stable financial health in terms of its ability to pay off its financial and operating expenditures. According to Berk and DeMarzo (2007), it is extremely important for a company to maintain a stable gross profit margin and such has been the same in case of Gillette company which is a good indicator of the company’s financial performance as the company is in good position to accumulate sufficient saving for future investments.
Return on Asset: This ratio is calculated by dividing net income by total assets. The ratio provides a good indication of the extent to which a company is making profit with respect to its assets (Wahlen, Stickney and Brown, 2010). As is evident from figure 3 given below Gillette’s ROA has increased steadily from 12.3% in 2012 to 13.8% in 2013. The increasing value of ROA suggests that Gillette’s management strategies were very effective which in turn allowed the company to translate every dollar of asset invested into net income. The managers efficiently utilized the assets in its business operations which in turn contributed to this gradual increase in ROA.
Return on capital employed: Computed by dividing the earnings before interest and taxes by the capital employed, this metric indicates how effectively a company has used its capital in order to generate value for the shareholders (Thukaram, 2007). Figure 4 given below indicates that Gillette’s ROCE has increased considerably from 28% in 2012 to 32% in 2013. This drastically increasing value of ROCE suggests that the company has used its capital very efficiently. The increasing value clearly indicates a company’s stability in relation of its ability to provide healthy returns to company associates.