ACG3401 Professor Pundrich Mariama Bokoum Financial Statement Analysis The three companies I chose to analyze with JupyterLab are Bath and Body Works, Estée Lauder, and L'Oréal. These companies are classified with the NAICS Code 446120 - Cosmetics, Beauty Supplies, and Perfume Stores. The five accounting ratios I used were the gross profit margin, the current ratio, the capital expenditure ratio, the debt to equity ratio, and the earnings per share ratio. For each of the ratios, I took the average for the three years. The first accounting ratio I calculated was the gross profit margin using gross profit and net sales from the income statement. The gross profit margin is a measure of profitability that shows how much revenue companies are generating considering their costs. In this case, companies want to have a high gross profit margin. With the code I used, I found that Estée Lauder had the highest average gross profit margin and this was true. The second accounting ratio I calculated was the current ratio using current assets and current liabilities from the balance sheet. The current ratio is a measure of liquidity that shows a company’s ability to pay off short-term obligations. That means companies want to have a high current ratio. The code I used revealed that Estée Lauder had the highest average current ratio and this was true. The third accounting ratio I used was the capital expenditure ratio using cash flow from operations and capital expenditures from the statement of cash flows. The capital expenditure ratio shows how much cash a company is generating from operations per dollar of investments towards capital expenditures. This means that companies want to have a high capital expenditure ratio. The code I used showed that L'Oréal had the highest average capital expenditure ratio which is true. The fourth accounting ratio I used was the debt to equity ratio using total liabilities and total stockholder’s equity from the balance sheet. The debt to equity ratio shows the comparison of equity and debt that a company uses to finance its assets. Unlike the first three ratios, the highest debt to equity ratio is not necessarily a good thing. A company wants its debt to equity ratio to be between 0 to 2 and closer to 1 to 1.5. The higher the ratio the more money a company had to borrow but a negative debt to equity ratio means that a company has more liabilities than assets which is risky. So, the code I used determined that L'Oréal had the best average debt to equity ratio, which was true. The fifth and last ratio I used was earnings per share using net income and outstanding shares from the income statement. The earnings per share ratio measures how much money a company made for each share. Companies want to have a high earnings per share ratio as that attracts investors. The code I used, determined that L'Oréal had the highest earnings per share. Overall, at first, I thought Estée Lauder would be the most successful company but the last three ratios determined that it could be L'Oréal. One ratio may not be more important than the other but it just depends on what the investors and the Board of Directors of a company want to use to determine success. Each of the codes I used did properly calculate the ratios and compared them successfully. Sources: https://www.investopedia.com/ask/answers/021215/what-difference-between-gross-profit-margin -and-net-profit-margin.asp https://www.investopedia.com/terms/c/currentratio.asp#:~:text=The%20current%20ratio%20is% 20a,current%20debt%20and%20other%20payables. https://www.investopedia.com/terms/c/cashflow_capex.asp https://www.investopedia.com/ask/answers/062714/what-formula-calculating-debttoequity-ratio. asp#:~:text=The%20debt%2Dto%2Dequity%20ratio%20shows%20the%20proportion%20of%2 0equity,event%20of%20a%20business%20decline.&text=Debt%20can%20also%20be%20helpf ul%2C%20in%20facilitating%20a%20company's%20healthy%20expansion. https://www.investopedia.com/terms/e/eps.asp#:~:text=EPS%20indicates%20how%20much%20 money,relative%20to%20its%20share%20price.
