Financial Ratios And Performance Evaluation Of Jordanian Banks

Types of Financial Ratios

Rolls-Royce Holdings is a British multinational company which manufactures and distributes aviation components two different Airlines. Moreover, Rolls-Royce Holdings is considered the second largest aircraft engineer in the world, while the company also has operations in energy sectors and marine propulsion. The company was founded in 2011 why it currently employees 22,300 individuals in its organization (Rolls-royce.com 2018). The company is considered to be one of the leading brands in making high quality aviation engines, which are used by Alliance in their Air Buses.

Financial ratios are a relative instrument, which allows investors and stakeholders to identify current financial position of an organization. Moreover, the different branches of ratios directly help different segments of evaluators, which are utilizing the data to understand the actual financial position of the company. The financial ratios are mainly segregated in different segments such as profitability ratio, liquidity ratio, activity ratio, investment ratio, and gearing ratio. Profitability issue is relatively conducted to identify the current capability of the organization to generate adequate returns in order to survive the competitive market. Furthermore, the liquidity ratio and activity ratio are utilized by investors to identify the current position and efficiency of the company. The investment ratio relatively utilizes the EPS and other price sensitive information, which could I love investors to identify the investment scope within an organization. lastly the grading ratio directly allows to understand the financing relationship of an organization and detect whether it would stay solvent in future (Atoom, Malkawi and Al Share 2017).

The major benefit that is portrayed by financial ratios is its ability to evaluate the financial position of the organization. In addition, it portrays an in-depth knowledge regarding the operations and its ability to obtain sustainable growth (Cengiz, Combs and Samy 2017).

The major limitation of financial ratio is the difference in accounting standards, which may vary from business to business and pick a different financial position of the organization. in addition, the environmental conditions are also not accommodated by financial ratios, which is relatively affects the financial position and condition of the organization. Lastly, ratios are calculated on different methods, which limits the significance of obtained results (Kanapickiene and Grundiene 2015).

From the valuation operating profit ratio of the company as relatively decline from 2014 to 2017, as expenses of the organization increased over the fiscal years. However, the sales value increasing while the operating profit is substantially decreasing over the period (Rolls-royce.com 2018).

Benefits of Financial Ratios

From the evaluation it could be understood that gross profit margin of the company has declined over the period, which is relatively due to high cost of sales in curd by the organization. Moreover, the increment in cost is a relatively higher in comparison to revenues, which is why the increment in sales and gross profit did not increase the gross profit margin ratio of the organization in 2017 (Rolls-royce.com 2018).

From the overall evaluation return on capital employed can be identified which has declined substantially from 21.76% in 2014 to 26% in 2017. However, during 2007 16 the overall return on capital employed had a client 22.3 6%, which was due to the low operating profits obtained by the organization in the following year. Both total assets and total liabilities of the organization has a relatively increased, while its operating profit decline, which triggered the reduction in return on capital employed (Rolls-royce.com 2018).

The current ratio of the company has a relatively declined over the period, due to the accumulation of high current liabilities in comparison to current assets. This relatively declined the current ratio from 1.46 in 2014 to 1.34 in 2017 and hampered the capability of the organization to support its financial obligations (Rolls-royce.com 2018).

The decline in acid test ratio relatively indicate the deteriorating capability of the organization to sustain adequate current assets to support its financial obligations. The inventory level of the organization is relatively increased while the current liabilities in comparison to current assets and current liabilities, which has a relatively decline the acid test ratio of the organization (Rolls-royce.com 2018).

The trade receivables days of the organization has a relatively increased from 2014 to 2017, which depicts the high credits that is being provided by the company to its creditors. The rising these of payment relatively reduces capability of the company to sustain adequate capital to support its operations (Rolls-royce.com 2018).

Moreover, the evaluation of above table indicates trade payables payment period, which has a relatively increased from 2014 to 2017. This increment in trade payables has a relatively supported the operations of the company, as cash outflow time is substantially reduced, which helps the company to continue its operations by utilizing capital of the suppliers (Rolls-royce.com 2018).

Moreover, the inventory turnover ratio as a relatively improved over the period, as the value has declined from 2014 to 2017. This relatively indicates that inventory is being adequately used for supporting the operations of the company and accumulated less in the organization (Rolls-royce.com 2018).

Limitations of Financial Ratios

The information provided from gearing ratio indicates that stockholder’s equity has increased over the period, which is a concern for the organization. This rising accumulation of debt that is conducted by the organization would eventually hamper its capability to sustain adequate growth in future (Rolls-royce.com 2018).

From the overall evaluation the increment in interest coverage issue indicates that the company could obtain more debt, as its current interest payments are relatively low in comparison to operating profit. This provides the company with adequate leverage to increase its debt for conducting expansion and other future acquisitions (Rolls-royce.com 2018).

The above table indicates that the organization’s EPS has relatively increased over the period of 4 years, due to the rising net profits that is obtained by the organization. The operations of the company have a relatively improved, which has positively affected the net profit generation capacity of the organization (Rolls-royce.com 2018).

The price on in ratio of the company has relatively the client over the period of 4 fiscal years, which is due to the rising EPS obtained by the organization and stagnant share price. this decline in price earnings ratio would eventually allow investors to meet adequate investment decisions, as there is a possibility for the company to improve its share price in future (Rolls-royce.com 2018).

The dividend cover ratio has a relatively improved over the period of 4 fiscal year. as the ordinary dividend payment that is conducted by the company has increased. This increment and dividend payment is relatively supported by is rising profit that is obtained by the company in the fiscal years (Rolls-royce.com 2018).

Conclusion:

From the overall evaluation of above ratios, the financial position of Royal Royce Holdings can be identified, as its financial stability has relatively improved over the period. This makes an adequate investment condition for the investor, who are willing to increase return from investment. The profitability ratio relatively helps in detecting the decline in financial position and condition of the organization over the period of four fiscal years. The activity or efficiency condition of the company as a relatively improved, as low inventory accumulation is conducted. The gearing and liquidity position of the company has a relatively decline, which is depicted from the ratio calculated in the above sentence. However, the investor issue as a relatively improved over the period, which could help in generating higher returns from investment. From the overall evaluation it could be identified that investments in Royal Royce Holdings is a viable approach which could be conducted by investors efficiently.

References:

Atoom, R., Malkawi, E. and Al Share, B., 2017. Utilizing Australian Shareholders’ Association (ASA): Fifteen Top Financial Ratios to Evaluate Jordanian Banks’ Performance. Journal of Applied Finance and Banking, 7(1), p.119.

Buchman, T., Harris, P. and Liu, M., 2016. GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios.

Caro, N.P., Guardiola, M. and Ortiz, P., 2018. Classification trees as a tool to predict financial difficulties in Latin American companies through their accounting ratios. Contaduría y Administración, 63(1), pp.25-26.

Cengiz, H., Combs, A. and Samy, M., 2017. An Analysis of how Financial Ratios of Companies in Turkey Are Affected by National Standards, and IFRS. International Business Research, 10(12), p.183.

Ferrer, R.C. and Tang, A., 2016. An empirical investigation of the impact of financial ratios and business combination on stock price among the service firms in the Philippines. Academy of Accounting and Financial Studies Journal, 20(2), p.104.

Johri, S. and Maheshwari, T., 2015. An empirical study on the practical efficacy of ideal financial ratios. Pranjana, 18(1), p.41.

Kanapickien?, R. and Grundien?, Ž., 2015. The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, pp.321-327.

Laitinen, E.K., Lukason, O. and Suvas, A., 2014. Behaviour of financial ratios in firm failure process: an international comparison. International journal of finance and accounting, 3(2), pp.122-131.

Le, H.H. and Viviani, J.L., 2017. Predicting bank failure: An improvement by implementing machine learning approach on classical financial ratios. Research in International Business and Finance.

Rolls-royce.com. (2018). About. [online] Available at: https://www.rolls-royce.com/about.aspx [Accessed 13 Apr. 2018].

Wijesundera, A.A.V.I., Weerasinghe, D.A.S., Krishna, T.P.C.R., Gunawardena, M.M.D. and Peiris, H.R.I., 2015. Predictability of stock returns using financial ratios: empirical evidence from Colombo stock exchange.

Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia. Australasian Accounting Business & Finance Journal, 9(3), p.27.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order