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The company that I used in this scenario is Fiserv, Inc. Fiserv Inc. has 14% of the market share in the Credit Card Processing and Money Transferring in the U.S.
The Gross profit ratio is calculated by taking the gross profit divided by net sales x 100.
The Gross Profit Ratio (All numbers are represented in millions).
2020 = 14,852,000/237,000,000 = 0.063 X 100 = 6.27%
2019 = 10,187,000/250,000,000 = 0.041 X 100 = 4.07%
To calculate the operating margin, divide operating income (earnings) by sales (revenues). (All numbers are represented in millions).
Operating Margin Ratio
2020 = 1,852,000/ 14,852,000 = 0.12%
2019 = 1,609,000/10,187,000 = 0.16%
To calculate the Net Income Margin Ratio, you must use the income statement. Subtract the cost of goods sold (COGS), operating expenses, other expenses, interest (on debt), and taxes payable. Divide the result by revenue. After this you then need to convert the figure to a percentage by multiplying it by 100.
Net Income Margin Ratio
2020 = 1,852,000/14,852,000 = 0.1246 X 100 = 12.5%
2019 = 1,609,000/10,187,000 = 0.1579 X 100= 15.8%
Looking at the key statistics Fiserv is only out marketed in the industry by two companies which are PayPal Holdings Inc. with a Market Share of 15.2% and Square Inc. with a market share of 14.7%. Fiserv is on tract to be a $20-billion-dollar company. As of 2020 they have generated $14.9 billion in total sales revenue. In 2019, the company was at -24.9% in growth, but they completed the purchase and merger with First Data which has accounted for the growth change. The company in 2020 had d growth change o9f 26.3% which is phenomenal during the pandemic and currently for 2021 there has been an additional 3.1% change in growth.
The gross profit ratio has changed from 2019 to 2020 in a positive way. The increase is due to the completed merger and the new CEO spearheading and implementing a sales push in the new EPOC platforms to clients. Additionally, the Operating Margin dropped 4% in 2020 and that is due to the company assessing their sites and tightening their belts during the pandemic. The company chose to close all leased sites to save money on operating costs. Additionally, the net income for 2020 did decrease but that can be attributed to the pandemic and the shut down of much of the country. The company is now rebounding. As an employee and a stock investor in the company, yes I would buy stock because the company has rebounded well from the pandemic with minimal layoffs and is forging towards high sales revenue along with creating a high net income. With the merger of Fiserv Inc. and First Data the company has gone from a Fortune 500 company to a Fortune 250 company and is the third largest company in the credit card and money transferring industry in the U.S. The company continues to grow and acquire processing services like Clover, OnDot, and 51% of Bank of America’s Merchant Services. They are a company that is here to stay.
The gross profit ratio shows the relationship between the gross profit and the net sales; it widely used by business managers, creditors and investors to assess performance of a company (Porter & Norton, 2018). For UPS, the gross profit ratio is illustrated as:
|$15,284 gross profit||$13,717 gross profit|
|$84,628 sales||$74,094 sales|
In the industry of Couriers and Local Delivery Services in the United States, UPS is not only a major player, but also, they are at the top of the pack of the large courier companies (Ristoff, 2021). The operating margin ratio is the measurement of profit made on the dollar of sales after payment of the variable costs of production (Hayes, 2021). It is found by dividing the operating income by sales (Hayes, 2021).
|$7,684 operating income||$7,798 operating income|
|$84,628 sales||$74,094 sales|
|9%||10%||No record available|
Although there is no available industry standard in operating margin ratio, it is clear that UPS leads Industry standards due to the company’s size and the increase in demand due to e-commerce. Industry operators spend on average $0.05 in capital investment for every dollar spent on labor but given technology for tracking and communication systems that is used globally, UPS’ operating margin is significantly higher (Ristoff, 2021). The net income margin ratio is a percentage of how much net income is generated of the company revenues received (Murphy, 2021). This ratio helps investors see how much profit a company has generated from sales and whether operating costs are being contained (Murphy, 2021). It is found by dividing the net income by revenue and then multiplying by 100.
|$1,343 income||$4,440 income|
|$84,628 sales (100)||$74,094 sales (100)|
|1.5%||5.99%||No record available|
As a potential investor, I would be interested in the long-term investment with UPS. Given its ability to change course and still maintain a nearly identical profit margin ratio and despite the reduction of net income margin from 2019 to 2020, it is clear that industry was just seeing a challenging time due to the pandemic. In fact, according to industry research, the outlook remains strong due to the increasing share of business provided by large retailers in e-commerce (Ristoff, 2021). The trends in the last few years with all three ratios suggests that UPS either maintained, or only slightly fell short on consistent numbers between 2019 and 2020. Further, the rising demand in the industry, with UPS leading the way in the rebound, has been due to new ways of doing business including the development of technology.
An important part of assessing a companies financial performance is to look at inventory turnover. To calculate the inventory turnover ratio we use the formula of “Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory” (Corporate Finance Institute, 2020). This is an important ratio to understand because it paints a picture of how well a company manages their inventory.
|Target Inventory Ratio|
|Fiscal Year||Cost of Sales||Inventory||Inventory Turnover|
* (“Target Corp. (NYSE:TGT),” n.d.)
|Sector Inventory Ratio|
* (“Target Corp. (NYSE:TGT),” n.d.)
After reviewing Target Corporations Inventory Ratio, I feel they do a good job of managing their inventory. They move inventory all over the United States and even places abroad. I feel they compete right in line with the industry average, especially when comparing to the other big players in their industry, like Amazon and Walmart. Some of the major impacts to the movement of inventory is due to Covid. Companies, like Target, have needed to be creative to keep inventory moving out the door. Target made investments to their mobile application to allow customers to shop online, based on in-stock inventory, then have it brought out to their car upon arrival. They’ve also added more self-checkout options to stores to limit the interaction customers need with employees, which makes people feel more comfortable to shop. As an investor I would feel very comfortable with Target’s inventory management. Target is not sitting around hoping for people to buy their stuff. They know their target audience, “pun intended”, and are continuing to invest in innovations to make the buying process easier. Target will continue to be pushed by other major retailers, like Walmart and Amazon, but that will only make them stronger.
For this discussion I decided to use Michaels Craft Store (MIK- ticker symbol). To find the inventory turnover ratio we must take the cost of goods sold and divide by average inventory, this shows us how inventory is moved in a particular time frame. Michaels uses a year over year frequency for measuring ratios, theirs is done quarterly with a slight difference in days based on days in the quarter. To put simply Michaels compares one time to the same time the next year.
When reviewing the graph, we see that inventory stays between 2.54 and 3.08 now there are several reasons why this can happen. First, we look at what we are selling. Michaels is a crafts store, so they are likely going to sell inventory faster through the holidays because this is what they are known for decorations, arts, and crafts for holidays. We can see from the graph that January which is coming at the end of holiday season is a decent ratio of 3.08. This gives us an idea of how fat we sell through the inventory we have in stock which is a good indicator so management can see how fast inventory is moving or not moving. When we haven’t sold through inventory very fast looking at May 02, 2020, we see their ratio was 2.54. this could be because damaged inventory or even that the inventory is priced too high for the area it is being sold in. When reviewing the ratios, I would have to say I would not advise anyone to invest because it appears although inventory is moving it is just not at a good speed. Although inventory is an asset it is not a good asset until it is sold. It is for this reason I would hold off and get a few more quarters of ratios presented before I would suggest investing. Again, we know the pandemic played a part but given that by holiday season in 2020 Michaels stores had reopened and they are known for decoration, arts and supplies and I just do not see that the sales were there to give them a good standing to secure more investment.