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Table 1: LG 생활건강 Short-term solvency, or liquidity, ratios
Current ratio=
1,207,774,003,302/458,339,609,527
Current assets/Current liabilities
=2.64
Quick ratio=
(1,207,774,003,302-
(Current assets-Inventory)/Current
388,781,356,625)/458,339,609,527=1.79
liabilities
Cash ratio=
461,909,219,142/458,339,609,527
Cash/Current liabilities
=1.01
Net working capital to total assets=
749,434,393,775/5,057,410,286,789
Net working capital/Total assets
=0.15
(Net working capital=
1,207,774,003,302-458,339,609,527
Current assets-Current liabilities)
=749,434,393,775
Interval measure=
1,207,774,003,302/8,994,786,148
Current assets/Average daily operating
=134.27
costs
Average daily operating costs=
(1,713,393,120,862+1,569,703,823,342)/365
(COGS+SG&A)/365
=8,994,786,148
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Table 2: LG 생활건강 Dupont identity
ROE=Net income/Sales x Sales/Assets x Assets/Total equity=Profit margin x Total asset
turnover x Equity multiplier
Profit margin=Net income/Sales=389,709,307,964/3,500,213,662,373=11.13%
Total asset turnover=Sales/Assets=3,500,213,662,373/5,057,410,286,789=0.692
Equity multiplier=Assets/Total equity=5,057,410,286,789/4,438,155,069,402=1.14
ROE=Net income/Total Equity=389,709,307,964/4,438,155,069,402=8.78%
ROE=11.13% x 0.692 x 1.14=8.78%
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Table 1: 아모레퍼시픽 Short-term solvency, or liquidity, ratios
Current ratio=
1,563,590,026,012/404,191,285,672
Current assets/Current liabilities
=3.87
Quick ratio=
(1,563,590,026,012-
(Current assets-Inventory)/Current liabilities
237,401,032,140)/404,191,285,672
=3.28
Cash ratio=
235,060,688,271/404,191,285,672
Cash/Current liabilities
=0.58
Net working capital to total assets=
1,159,398,740,340/5,374,183,609,328
Net working capital/Total assets
=0.22
(Net working capital=
1,563,590,026,012-404,191,285,672
Current assets-Current liabilities)
=1,159,398,740,340
Interval measure=
1,563,590,026,012/6,457,455,418
Current assets/Average daily operating
=242.13
costs
(Average daily operating costs=
(863,928,443,314+1,493,042,784,135)/365
(COGS+SG&A)/365)
=6,457,455,418
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Table 2: 아모레퍼시픽 Dupont identity
Profit margin=Net income/Sales=74,583,160,072/2,439,435,801,356=3.06%
Total asset turnover=Sales/Assets=2,439,435,801,356/5,374,183,609,328=0.454
Equity multiplier=Assets/Total equity=5,374,183,609,328/4,839,620,232,049=1.11
ROE=Net income/Total equity=74,583,160,072/4,839,620,232,049=1.54%
ROE=3.06% x 0.454 x 1.11=1.54%
Dupont breakdown: LG생활건강 and 아모레퍼시픽
ROE
Profit Margin
Total Asset Turnover
Equity Multiplier
8.78%
11.13%
0.692
1.14
1.54%
3.06%
0.454
1.11
LG 생활건강
2023
아모레퍼시픽
2023
The current ratio is a measure of short-term liquidity. For creditors, the current ratio is
favorable when higher because it indicates that the company is more capable of meeting its
short-term obligations. A high current ratio suggests that the company has abundant
liquidity, but it could also indicate inefficient use of cash or other current assets. In general,
we expect the current ratio to be at least 1. LG 생활건강's current ratio is 2.64,
and 아모레퍼시픽's is 3.87, indicating that both companies have relatively high current ratios.
Since 아모레퍼시픽 has a higher ratio than LG 생활건강, it has a greater ability to repay its
short-term liabilities, though it may also be less efficient.
The quick ratio measures liquidity after excluding inventory, which is less liquid than cash.
The quick ratio reflects the fact that inventory is less liquid compared to
cash. LG 생활건강 and 아모레퍼시픽 have current ratios of 2.64 and 3.87, respectively.
However, since 아모레퍼시픽 does not hold significant inventory, its quick ratio is 3.28,
similar to its current ratio, whereas LG 생활건강 has a higher proportion of inventory,
resulting in a quick ratio of 1.79. Due to the larger proportion of inventory, LG 생활건강’s
current assets are relatively less liquid compared to 아모레퍼시픽.
Short-term creditors would be interested in the cash
ratio. LG 생활건강 and 아모레퍼시픽 have cash ratios of 1.01 and 0.58, respectively, which
indicates that LG 생활건강 has a greater ability to cover its short-term liabilities with cash.
The net working capital to total assets ratio considers the amount of current liabilities, and
when this ratio is relatively low, it indicates lower
liquidity. LG 생활건강 and 아모레퍼시픽 have ratios of 0.15 and 0.22, respectively, which
shows that 아모레퍼시픽 manages a relatively higher portion of its assets in a liquid form.
The interval measure represents the period a company can continue operating without
generating revenue. LG 생활건강 and 아모레퍼시픽 have values of 134.27 and 242.13,
respectively, meaning 아모레퍼시픽 can sustain its operations for a longer period without
revenue, suggesting greater stability.
By comparing LG 생활건강 and 아모레퍼시픽 using the DuPont identity, the profit margin is
11.13% for LG 생활건강 and 3.06% for 아모레퍼시픽, showing that LG 생활건강 generates
more profit relative to sales. Total asset turnover is 0.692 for LG 생활건강 and 0.454 for
아모레퍼시픽, meaning LG 생활건강 utilizes its assets more efficiently. The equity multiplier is
1.14 for LG 생활건강 and 1.11 for 아모레퍼시픽, with LG 생활건강 outperforming in all three
aspects.
If short-term financial stability and liquidity are prioritized, 아모레퍼시픽 may be the better
choice. However, if profitability and asset efficiency are the focus, LG 생활건강 is superior.