Gamble in 2005. You have been supplied with the annual report of Gillette Company for the year 2003. Assuming you are an inve" The liquidity ratios assist in determining if a company is likely to experience problems in repaying its current liabilities. Hence, if the current ratio is higher, then the liquidity position is stronger. The Asset Management Ratios try to measure the success of Gillette Company in managing assets to generate sales (Drake and Fabozzi, 2012).
The ratios are affected by both changes in the selling price of the output of a company and the changes in its costs. For instance, if the ratios fall, it may be due to higher average unit costs or lower selling prices or both. On the other hand, if they rise it may be attributable to lower average unit costs or higher sale price or both. Therefore, analysts and investors have to look behind the ratios so as to get an idea of the cause of change over time. It may also help them understand the differences between different firms operating in the same market (Fridson, Alvarez and FinancePro, 2011).
The first two ratios, return on total assets and return on capital employed are the alternative ways of investigating how well Gillette company has done in generating profits from its operating assets (Fridson and Alvarez, 2011).The third ratio return on equity has a different focus from the two ratios. Return on equity is with the measurement of performance solely from the perspective of the shareholders. Therefore, it is necessary to use profit for the year since it is measured by subtracting interest. The ratios show that the Gillette Company has done well-generating profits, and the company is in a better financial position (Fridson and Alvarez, 2011).
The liquidity ratios indicate that the Gillette Company does not have problems in repaying its current liabilities. Gearing ratios are crucial to both shareholders as they give information on the financial risk of the enterprise. From the lender’s viewpoint the lower the debt-equity ratio and the higher