Financial Ratios

The objective is to analyze different financial ratios. Some of the financial ratios in
the analysis included the current ratio, the debt-to-equity ratio, the gross margin, the net profit
margin, and the return on equity. The financial analysis will show the computations of
Apex printing financial ratios and make a comparison to the ratio of the other two
companies operating in the same industry. The two companies are Gatehouse Media and
Gannet company. Gatehouse Media is an American-based publication company that takes
part in the production of both print and digital media. The ownership of the company is by
New Media Investment groups and that was before they merged with Gannett company
recently in the year 2019. Gannet is also an American-based media company, but its sole
purpose is the production of newspapers for local daily circulation.
Current Ratio:

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Financial ratios are one of the ways of comparing the health status of a company in
comparison to those that operate in the same industry. In order to know how well a
company is performing, financial ratios are used to identify the strengths and weaknesses
of a company. One of the types of ratios is the liquidity ratio. The liquidity ratio is used to
measure the current ratio of a company. The ratio measures the ability of a company to
meet its current/short-term obligations. The ratio indicates the liquidity position of a
company. It is the ratio of the current assets to the current liabilities of a company. The
information on the current assets and liabilities can be obtained from the balance sheet of a
company. The higher the ratio, the better as the company is able to pay for the bills.
Apex: 14,500/11,200=1.29%
Gatehouse: 115,740/73,040=1.58%
Gannet Company: 776,115/718,453 = 1.08%
The current ratio for Gatehouse company is the highest, implying they are in a
much better position to meet their short-term goals than any of the other two companies.
Net Profit Margin Ratio– profitability:
The new profit Margin Ratio indicates the profitability of the company. It shows
how well the company is performing in generating revenue. The computation of the
profitability of the company is done by comparing how much the company earned to the
sales that they made within a specific financial year. The most common formula is from
the income statement, where the net income is divided by the sales. The higher values are
essential as it indicates the company is making for every dollar they obtain from the sales
(Peavler, 2014).
Apex: 68,750/450,000=15.28%

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Gatehouse: 13,180/119,600=10.90%
Gannet Company:34,200/100,102=34.17%
The profitability ratio for Gannet company is higher than that of the other two
companies. That means that the company is performing much better than the other two
operating in the same industry.
Debt to Equity Ratio:
The ratio aims at understanding the amount of debt that the company has in
running its operations. Debts are not as bad as they make the company remain afloat in the
business. The main figure to consider while determining the debt ratio is the total liability
of the company. Total liability represents the amount that the company owes other
stakeholders or companies. The information on the liability is present on the balance sheet
and is divided by the equity of the stakeholders. The debt ratio does not need to be huge,
and it will not be good for the operation of the business. The lesser the ratio, the better. If
the ratio is high, then it shows that the debt is outweighing the worth of the company. A
huge debt means that the investors will shy off from investing in the company. It will be
more appropriate if the debt ratio is less than one. A ratio that is less than one indicates
that the company is able to pay off the existing debt in the right way and within a short
time (Accounting Tools, 2014).
Apex: 100,000/63,300=1.58%
Gatehouse 1,176,640/803,970=1.46%
Gannet Company: 1,101,550/990,100 = 1.11%

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All the debt ratios are above one, and no company is able to effectively and
efficiently pay off their debt. However, the liabilities in Gannet Company are better off
than the remaining two as the debt ratio is much smaller than the other two companies.
Gross Margin Ratio:
The success of the company is very important, and thus, there is a need to
determine the gross margin ratio as it will indicate the level of success in the company.
The gross margin will show what sections of the company are performing well monetarily
and are generating more profits. The outcomes of the ratio will show the gross profit in
reference to a section of the sales that the company makes. When the ratio is large, it
means that the company is making more profits for each dollar of sale they make. The
information used in the computation of the gross margin ratio is obtained from the income
statements. The gross profit margin is divided by the sales or the revenue that the company
generated within a specific period of time.
Apex: 97,850/450,000=21.74%
Gatehouse: 130,000/140,000=92.86%
Gannet Company: 123,434/152,891 = 80.73%
The outcomes of the computation indicate that Apex is getting a profit of 0.22
cents for each of the dollar sales they make from the cash register. That is, that is the same
amount that is going into the gross profit margin.
Return on Equity Ratio:
The return on equity is the last ratio that is used is showing the fiscal performance
of a company. The outcome of the ratio is key is showing the investors if they are in a
position to get good returns out of the investment they make in a company. Equally, the

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ratio will show how effective and efficient the company is in the management of their
financial assets. The computations measure the profit of the monies of the various
stakeholders towards the company. The tools for calculating the return on equity are
obtained from both the balance sheet and the income statement. If the ratio is high, then
the company will be able to generate good income out of the investments that the
stakeholders make towards the company. Also, the stakeholders will be able to rip good
profits out of their investment. The determination of the return on equity is done by
dividing the net income and the total amount of the shareholders’ equity.
Apex: 68,750/84,550=81.35%
Gatehouse: 140,900/831,960=16.93%
Gannet Company: 50,465/67,208=75.08%
From the ratio, Gannet company has the highest return on equity ratios. That
shows that when compared to the other two companies, Gannet company is well utilizing
the assets, and the stakeholders will gain more from investing in the company than in the
other two companies.
Conclusion:
From the comparison made on the three companies that are in the same line of
production, Apex appears to be performing well than the remaining two companies.
Though there might be slight variations in some of the ratios, there is a need to put into
consideration that there are other huge companies, and that does not mean they are
performing well that the small companies. It is possible that the huge companies are
getting much higher discounts for some of their large orders than the small companies and
that might be a source of the variation. Also, the discounts of the big companies might be

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in large volumes, and they get better prices, which increases their sales and make them
better off the small companies. It is important to consider all the ratios while determining
the financial position of a company. One ratio might show better outcomes, and other
ratios might show a variation. Accompany might also have debt, but that does not mean
they are performing poorly. It is also possible to find a company that has fewer liabilities,
but that is not an indication of good performance. Determination of the debt ratio is
essential in showing how good or bad a company is performing with reference to the
amount of their liability. In general. Apex is performing well, and that shows good
financial health for the company.

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References

Accounting Tools (2014). Debt to Equity Ratio. Retrieved From:
http://www.accountingtools.com/debt-to-equity-ratio
Peavler, R. (2014). About Money, what is the Net Profit Margin Ratio? Retrieved From:
http://bizfinance.about.com/od/financialratios/f/Net_Profit_Margin.htm