Question

Financial Analysis

	Hewlett-Packard Company (HPQ)	Johnson and Johnson (JNJ)	The Kraft Heinz Company (KHC)	Macy's, Inc. (M)
Current Ratio = Current Assets / Current Liabilities	1	1.41	0.72	1.47
Total assets turnover ratio = Sales / Total assets	1.68	1.33	0.22	1.27
Times interest earned = EBIT / Interest expense	11.6	1992.18	5.48	5.81
Debt-to-equity ratio = Total debt / Total equity	-2.29	0.58	0.48	1.04
Net Income / Net Sales (percent) or Return on Sales (ROS)	4.85%	1.70%	41.93%	6.23%
Net Income / Total Assets (percent) or Return on Assets (ROA)	8.16%	0.87%	9.14%	7.89%
Net Income / Common Equity (percent) or Return on Equity (ROE)	0%	1.99%	17.83%	30.95%
P/E or P/E Ratio (X)	14.46	349.3	8.69	5.12

Answer the following questions based on your research:

1. How would you rank the four firms in terms of financial performance?

2. Why might their financial performances differ?

3. What economic or market factors might account for big differences in P/E ratios?

Answer 1

Answer 1) Financial performance of a company is crucial for shareholders ,(equity investors)

On the basis of  Return on Equity (ROE) ranking given company

Macy's, Inc. (M)

The Kraft Heinz Company (KHC)

Johnson and Johnson (JNJ)

Hewlett-Packard Company (HPQ)

Answer 2) financial performances differ due to

• Leverage ratio( capital structure)
• Amount of sales
• Net operating income
• Market demand of the shares

Answer 3) economic or market factors impact the P/E ratios

• Market demand of the shares
• Growth in the economy
• Stages of the economy ( stable , recession , growth)
• Number of free floating shares in market
• capital structure of the company
• Levarage ratio ( equity and Debt)
• Future of the industry