Question

. Fluor is about twice the size of Jacobs Engineering. What method would you use to compare their financial results?

Answer 1

Financial ratios will help to compare the two. This will make both companies of different scales comparable to each other.

For instance, Fluor has Sales of 200,000 and net income of 15000. This means that its Porfit margin is 15000/200000 = 7.5%

Jacobs on the other hand has Sales of 100,000 and Net Income of 10,000. This implies that its profit margin is 10000/100000 = 10%.

So we see that Jacobs is more profitable than Fluor even though its dollar profit is actually lower. Ratios are useful indicators of the performance and give a view of the efficiency, profitability and liquidity of the firms.