Interpreting Financial Results Elisha I Maldonado Negrón

Interpreting Financial Resultselisha I Maldonado Negrónfin571 Foundat

Interpreting Financial Results Elisha I. Maldonado Negrà³n FIN571 Foundation of Corporate Finance November 9, 2015 Dr. Ricardo Rivera-Matos Interpreting Financial Results Financial ratios are powerful tools of company analysis and in most cases they are useful in decision making (Hoskin, Fizzell & Cherry, 2014). There are numerous financial rations depending on the aspect of comparison under question. Just like any other company, Manpower Group is not an exception and therefore its analysis cannot go without some financial ratios (Hoskin, Fizzell & Cherry, 2014).

Using these ratios, it would be important to compare Manpower Group with other companies as well as with the industry benchmarks. Liquidity Ratios Current ratios. It is also referred as working capital ratio. It is used to test whether the current assets can cover the current liabilities. Given by the Currents Assets/Current Liabilities (Hoskin, Fizzell & Cherry, 2014). a. 2015. Current ratio= 176664/268728; 0.6 b. 2014. Current ratio=168769/263101; 0.64 This shows the company is able to cover its current liability. There is a slight increase in liabilities in 2015 but the current assets are still higher than liabilities.

Quick ratio. It measures the most liquid current assets that can cover up current liabilities. Given by the Cash Equivalents + Short Term Investments + Receivables/Current Liabilities (Hoskin, Fizzell & Cherry, 2014). a. 2015. Quick ratio= (98107+96557+60927)/268729; 0.95 b. 2014. Quick ratio= (95452+77182+54494)/263101; 0.86 In 2015, the current assets were higher than 2014 as a result mainly of cash in bank and higher receivables. Efficiency Ratio Accounts receivable turnover ratio. It is given by; Total Annual Sales/Accounts Receivable. a. 2015 Accounts receivable turnover ratio= 154885/60927; 2.24 b. 2014 Accounts receivable turnover ratio= 139894/54494; 2.57 This calculation shows that the company made more sales in 2014 than 2015. Inventory turnover ratio. It is given by the Cost of Goods Sold/Average Inventory (Hoskin, Fizzell & Cherry, 2014). In 2014 the ratio was 4.6 and in 2015 is at 4.94 this shows that more sales have been made in 2015 than in 2014. Leverage ratios Debt ratio. This is calculated by: Total liabilities/Total Assets (Hoskin, Fizzell & Cherry, 2014). In 2015 debt ratio was 6.53 this is the number of assets financed by debt in 2014. Debt-equity ratio. Compares the company’s debt to shareholders equity. Given by the Total Liabilities/Shareholder Equity. Manpower shareholding that has been financed by debt is 13.75 in 2015 up from 12.96 in 2014. Profitability Ratios This is the measure of the company’s profitability through its ability to make profit for the company operations and for the shareholders (Hoskin, Fizzell & Cherry, 2014). Gross margin. It shows the profitability of goods and services. The profit that the company retains after incurring the direct cost. How much it costs to produce goods. Given by the Gross Profit/Net Sales x 100. The cost of producing goods in Manpower in 2015 was at 12.97%. Return on assets. It shows effective the business can obtain income from its assets. Given by the Net Income/Assets x 100. This is also the rate of liquidation where Manpower can convert its assets into income. In 2015 it was at 17.97%. Market value indicator Earnings per share. This would refer to incomes of shareholders if shares were to be sold. It is given by the Total Profits/Shares (Hoskin, Fizzell & Cherry, 2014). a. 2015. Earnings per share 652.5/465.8 = 1.4 b. 2014. Earnings per share 699.2/466.3 = 1.5 The shareholders earned more in 2014 per shareholding than in 2015, however the year’s final quarter are not yet out and could be a determiner in shareholders earnings.

Paper For Above instruction

Interpreting financial results is an essential aspect of analyzing a company's financial health and operational efficiency. Financial ratios serve as critical tools for investors, management, and stakeholders in making informed decisions. This paper examines key financial ratios of Manpower Group, comparing its performance between 2014 and 2015, and contextualizes these figures within industry benchmarks and broader financial analysis principles.

Introduction

Financial ratio analysis provides valuable insights into a company's liquidity, efficiency, leverage, profitability, and market performance. By examining ratios like liquidity ratios, efficiency ratios, leverage ratios, profitability ratios, and market value indicators, stakeholders can evaluate the company's operational effectiveness and financial stability. Manpower Group, as a leading staffing solutions provider, seeks to maintain a stable financial position to support growth and shareholder value.

Liquidity Ratios

Liquidity ratios measure a company's ability to meet short-term obligations. The current ratio compares current assets to current liabilities, serving as an indicator of liquidity. In 2015, Manpower’s current ratio was 0.6, down slightly from 0.64 in 2014, suggesting a modest decline in liquidity but still indicating sufficient assets to cover current liabilities (Hoskin, Fizzell & Cherry, 2014). Despite the slight decrease, the ratio remains below 1, which could raise concerns if the trend continues, but in this context, the company's assets still exceed liabilities, maintaining operational stability.

The quick ratio refines this analysis by considering only the most liquid assets—cash equivalents, short-term investments, and receivables. In 2015, the quick ratio was 0.95, an increase from 0.86 in 2014, primarily due to higher cash holdings and receivables. This suggests a stronger liquidity position in 2015, easing immediate financial constraints and enhancing the company's ability to respond to unforeseen obligations (Hoskin, Fizzell & Cherry, 2014).

Efficiency Ratios

Efficiency ratios evaluate how effectively the company utilizes its assets. The accounts receivable turnover ratio indicates how often receivables are collected annually. For 2014, the ratio was 2.57, indicating faster collection relative to 2015’s ratio of 2.24. This decline suggests that collection processes may have slowed in 2015, potentially impacting cash flow. Conversely, the inventory turnover ratio improved from 4.6 in 2014 to 4.94 in 2015, showing increased efficiency in inventory management and turnover, which correlates with sales growth and operational improvements.

Leverage Ratios

Leverage ratios assess the extent of a company's debt financing. The debt ratio in 2015 was calculated at 6.53, implying that a relatively small proportion of assets—approximately 6.53%—are financed through debt, which is indicative of a conservative debt policy. The debt-equity ratio increased from 12.96 in 2014 to 13.75 in 2015, illustrating a slight rise in leverage. While increased debt can facilitate expansion, excessively high leverage might pose risks if earnings decline or interest rates rise, but in this case, the ratio remains within manageable levels (Hoskin, Fizzell & Cherry, 2014).

Profitability Ratios

Profitability ratios reflect the company's ability to generate profits relative to sales, assets, and shareholder investments. The gross margin decreased from an unspecified value in 2014 to 12.97% in 2015, indicating a slight decline in the profitability of core operations. The return on assets was 17.97% in 2015, highlighting effective asset utilization and income generation efficiency. However, earnings per share slightly declined from 1.5 in 2014 to 1.4 in 2015, potentially reflecting lower net income attributable to shareholders, which may influence investor perception and investment decisions (Hoskin, Fizzell & Cherry, 2014).

Market Value Indicators

The earnings per share metric reveals the profitability per share owned by shareholders. The decrease from 1.5 in 2014 to 1.4 in 2015 suggests a marginal reduction in shareholder returns, possibly due to lower net income or shares repurchased. Despite this, overall earnings remained robust, and continued monitoring of profitability and market performance is essential for strategic decision-making.

Conclusion

In summary, the financial analysis of Manpower Group between 2014 and 2015 shows some areas of strength, such as improved liquidity in terms of quick assets and increased inventory turnover. However, certain ratios, including accounts receivable turnover and earnings per share, indicate areas where operational efficiency and shareholder returns could be optimized. Maintaining balanced leverage levels and focused efforts on cash flow management will be vital for sustaining financial health. Overall, financial ratios serve as invaluable tools for diagnosing the company's current position and guiding future strategic initiatives.

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