Business Financial Analysis Research Paper Example | Topics and Well Written Essays - 2000 words

Business Financial Analysis - Research Paper Example There are currently 1,396 IHOP restaurants in competition with restaurants like Denny's offering children menus and discounts for senior citizens serving low to moderate prices. Dine Equity Mission and core value is to become the number one franchiser in the restaurant industry while providing and exceptional customer service by committing to reducing overheads and optimizing on Applebee's and IHOP business. According to their last annual report their 1st quarter stock showed the highest closing price for 2008 and the 4th quarter stock showed the lowest closing price of 2008 compared to 2007 fiscal year highest closing price shown in the 3rd quarter and lowest closing price for 2007 shown in the 1st quarter. Also according to their 2008 annual report there are 5,300 registered holders as of February 17, 2009. In analyzing this company's profitability we will look at the company's return on assets (ROA), return on equity (ROE), Gross profit margin, price earning ratio (PE), divided yield and divided payout ratio. The gross profit margin has declined from a high of 0.403636 in 2006 to 0.26885 in 2008, this indicates that the profitability of the company is declining over the years, this shows that in the next period the gross profit margin may decline. From the above table it is evident that the return on assets has been declining over the years, the value is negative for the year 2007 and ... cost of sales 1179811 303891 208465 gross profit 433817 180668 141095 gross profit margin 0.268845731 0.37285 0.403636 The gross profit margin has declined from a high of 0.403636 in 2006 to 0.26885 in 2008, this indicates that the profitability of the company is declining over the years, this shows that in the next period the gross profit margin may decline. b. Return on assets: Return on assets indicates the amount of profit generated for each dollar of assets. It is calculated by dividing net income by total assets: Return on assets = net income / total assets The following table summarizes the results: return on assets 2008 2007 2006 total income -154459 -480 44553 assets 3361217 3831162 768870 return on assets -0.045953296 -0.00013 0.057946 From the above table it is evident that the return on assets has been declining over the years, the value is negative for the year 2007 and 2008 meaning that the firm's profitability has declined and therefore expected to decline in the future. c. Return on equity: The return on equity ratio indicates the rate of return on shareholders equity. It is calculated by dividing net income by the value of share holder's equity. Return on equity= net income / equity The table below summarizes the results: return on equity 2008 2007 2006 total income -154459 -480 44553 equity 42767 209373 289213 return on equity -3.611639816 -0.00229 0.154049 From the above table it is evident that the return on equity has been declining over the years, the value is negative for the year 2007 and 2008 meaning that the returns on shareholders equity has declined and is expected to decline in future. d. Price earning ratio: This is another ratio that indicates the profitability of a company, it is a ratio that indicates the price paid by