RATIO ANALYSIS Ratio Analysis for L’Oreal SA and Avon Products Inc. Name: Rodney Wheeler Instructor: Latricia Roundtree Course: B230/FIN1000 Date: 08/28/15 Ratio Analysis Ratio analysis is a tool that is used to determine the financial strength or the financial weakness of an organization (Drake & Fabozzi, 2010). Below is an analysis of 2014 financial statements for L’Oreal SA and Avon Products Inc. Computations are available in an excel work sheet attached. Liquidity Ratios Current Ratio Current Assets/Current Liabilities 0.945671269 1.44807542 Quick Ratio Current Assets-Inventories/(Current Liabilities) 0.701790121 1.046453693 Activity Ratios Inventory Turnover Sales/Inventory 9.95713465 10.47908052 Fixed Asset Turnover Net Sales/(Gross Fixed Asset-Accumulated Depreciation) 21.43455099 6.999106418 Total Asset Turnover Net Sales/Average Total Assets 0.178990466 0.359322218 Profitability Ratios Gross Profit Margin Gross Profit/Net Sales 0.711490325 0.621177126 Operating Profit Margin Operating Profit/Net Sales 0.172674419 0.046437401 Net Profit Margin Net Profit /Net Sales 0.217850169 0.045102659 Return on Assets Net Income/ total Assets 0.153092349 0.070022559 Return on Equity Net Income/Shareholders Equity 0.243179375 0.34672552 Leverage Ratios Debt Worth Total Liabilities/ Stockholders Equity 0.588270556 17.03278689 Debt ratio Total Liabilities/Total Assets 0.370342763 0.944458594 Coverage Ratios Time Interest Earned EBIT/Total Interest 123.6923077 2.478847885 Current Ratio: This ratio show the ability of the company to pay back its liabilities using its current assets and a ratio under 1 means the company is unable to pay its liabilities. The ratio of L’Oreal SA is 0.9456 meaning the company’s liabilities are slightly higher than the assets therefore it’s not in good financial condition. Avon's company assets can meet its liabilities as its ratio is more than one. Quick Ratio: This ratio measures the company’s ability to meet its liabilities using its liquid assets. It excludes inventory as it cannot be quickly converted to cash. A higher quick ratio indicates that the company is in a good liquid position. L’Oreal has a low liquidity and its cash cannot pay all its liabilities. Avon has a high liquidity and its cash can pay its liabilities. Inventory Turnover: A low turnover indicates poor sales. Both companies have a high turnover meaning they do not experience costs of unsold stock. Avon products have higher sales with a turnover of 10.48 while L'Oreal has 9.95 Fixed Asset Turnover: This ratio shows the ability of the company to generate sales using its fixed asset. L'Oreal has a high asset turnover of 21.43 meaning it is able to utilize few assets to generate more sales. Avon has a low turnover meaning a lot of its assets are not effectively utilized to generate sales or it could have overinvested in fixed assets. Total Asset Turnover: This ratio also measu ...

1. RATIO ANALYSIS
Ratio Analysis for L’Oreal SA and Avon Products Inc.
Name: Rodney Wheeler
Instructor: Latricia Roundtree
Course: B230/FIN1000
Date: 08/28/15
Ratio Analysis
Ratio analysis is a tool that is used to determine the financial
strength or the financial weakness of an organization (Drake &
Fabozzi, 2010). Below is an analysis of 2014 financial
statements for L’Oreal SA and Avon Products Inc.
Computations are available in an excel work sheet attached.
Liquidity Ratios
Current Ratio
Current Assets/Current Liabilities
0.945671269
1.44807542

2. Quick Ratio
Current Assets-Inventories/(Current Liabilities)
0.701790121
1.046453693
Activity Ratios
Inventory Turnover
Sales/Inventory
9.95713465
10.47908052
Fixed Asset Turnover
Net Sales/(Gross Fixed Asset-Accumulated Depreciation)
21.43455099
6.999106418
Total Asset Turnover
Net Sales/Average Total Assets
0.178990466
0.359322218

3. Profitability Ratios
Gross Profit Margin
Gross Profit/Net Sales
0.711490325
0.621177126
Operating Profit Margin
Operating Profit/Net Sales
0.172674419
0.046437401
Net Profit Margin
Net Profit /Net Sales
0.217850169
0.045102659
Return on Assets
Net Income/ total Assets
0.153092349
0.070022559

4. Return on Equity
Net Income/Shareholders Equity
0.243179375
0.34672552
Leverage Ratios
Debt Worth
Total Liabilities/ Stockholders Equity
0.588270556
17.03278689
Debt ratio
Total Liabilities/Total Assets
0.370342763
0.944458594
Coverage Ratios
Time Interest Earned

5. EBIT/Total Interest
123.6923077
2.478847885
Current Ratio: This ratio show the ability of the company to pay
back its liabilities using its current assets and a ratio under 1
means the company is unable to pay its liabilities. The ratio of
L’Oreal SA is 0.9456 meaning the company’s liabilities are
slightly higher than the assets therefore it’s not in good
financial condition. Avon's company assets can meet its
liabilities as its ratio is more than one.
Quick Ratio: This ratio measures the company’s ability to meet
its liabilities using its liquid assets. It excludes inventory as it
cannot be quickly converted to cash. A higher quick ratio
indicates that the company is in a good liquid position. L’Oreal
has a low liquidity and its cash cannot pay all its liabilities.
Avon has a high liquidity and its cash can pay its liabilities.
Inventory Turnover: A low turnover indicates poor sales. Both
companies have a high turnover meaning they do not experience
costs of unsold stock. Avon products have higher sales with a
turnover of 10.48 while L'Oreal has 9.95
Fixed Asset Turnover: This ratio shows the ability of the
company to generate sales using its fixed asset. L'Oreal has a
high asset turnover of 21.43 meaning it is able to utilize few
assets to generate more sales. Avon has a low turnover meaning
a lot of its assets are not effectively utilized to generate sales or
it could have overinvested in fixed assets.
Total Asset Turnover: This ratio also measures the efficiency of
the company in utilizing its assets and the higher the ratio the
better the company’s performance. Avon has a higher asset
turnover of 0.4 than L’Oreal with 0.2.
Gross Profit Margin, Operating Profit Margin and Net Profit
Margin
These ratios measure the ability of the company to generate
profits from its sales. Both companies have very high gross

6. profit margins of 71% and 62 % for L’Oreal and Avon
respectively meaning their sales can generate profit. Operating
Profit margin shows the efficiency of the company in generating
profits before deducting tax while the net profit margin
excludes interest and tax. L’Oreal has a high Operating profit
margin and net profit margin of 14% and 21% meaning the
company is operating efficiently. Avon has low margins of 4%
Return on Assets: This ratio measures the ability of the
company to effectively use its assets to generate income. Avon
Products has a low return on assets of 7% meaning its assets are
not fully exploited while L’Oreal has a higher return on assets
of 15% meaning it utilizes its assets to generate more income.
Return on Equity: It measures the ability of the firm to
generate profits from shareholders investments. The firms have
low return to equity meaning the shareholders investments are
not generating adequate profits.
Debt/Net Worth: This ratio indicates the percentage of company
financing that comes from creditors and investors. Avon has a
high ratio meaning it has more creditors financing than equity.
L’Oreal has more equity financing.
Debt Ratio: This ratio indicates the company's ability to pay off
its liabilities with its asset. Avon is more leveraged and
therefore considered as risky by lenders since it has a high ratio
of 0.9
Times-Interest-Earned: Both companies have the ability to meet
their debt obligations but L’Oreal has very high TIE meaning it
has an undesirable lack of debt or it is paying down too much of
its debt with earnings that could be used for other projects.
Reference

7. Drake, P. P., & Fabozzi, F. J. (2010). Financial ratio analysis.
Handbook of Finance.
6
Sheet1RatioFormulaL'Oreal SAAvon ProductsLiquidity Ratios
Current Ratio Current Assets/Current
Liabilities0.94567126861.4480754201Quick RatioCurrent
Assets-Inventories/(Current
Liabilities)0.70179012151.0464536928Activity RatiosInventory
TurnoverSales/Inventory9.957134650210.4790805157Fixed
Asset TurnoverNet Sales/(Gross Fixed Asset-Accumulated
Depreciation)21.43455098936.9991064175Total Asset
TurnoverNet Sales/Average Total
Assets0.17899046580.3593222177Profitability RatiosGross
Profit MarginGross Profit/Net
Sales0.71149032490.621177126Operating Profit
MarginOperating Profit/Net
Sales0.17267441860.0464374006Net Profit MarginNet Profit
/Net Sales0.21785016860.045102659Return on AssetsNet
Income/ total Assets0.15309234940.0700225586Return on
EquityNet Income/Shareholders
Equity0.24317937490.3467255202Leverage RatiosDebt
WorthTotal Liabilities/ Stockholders
Equity0.58827055617.0327868852Debt ratioTotal
Liabilities/Total Assets0.37034276270.9444585941Coverage
RatiosTime Interest EarnedEBIT/Total
Interest123.69230769232.4788478848
Sheet2
Sheet3
Running head : Investments, Interest Rates, and Risk

8. 1
6
Investments, Interest Rates, and Risk
Investments, Interest Rates, and Risk
Name: Rodney Wheeler
Institution: Rasmussen College
Date: 08/14/15
Investments in the stocks and then locate interest rates on two
other investments that are not stock .
1
23-07-15
Apple
AAPL
$125.16
2
23-07-15
Google
GOOG
$644.28

9. 3
23-07-15
Avon Products, Inc.
AVP
$5.65
4
Government, bonds
10-yrs
3.06%

10. 5
Bank,CDs
5-yrs
1.81%
Source: bankrate( online)
http://www.bankrate.com/finance/retirement/stocks-bonds-and-
mutual-funds-1.aspx
Investments mostly highly affected by the level of interest rates
in the economy? Why?
Bonds are affected by the rate of interest as the government
bond prices change with the changes in interest rates for if
interest rise the value of bonds drop and whenever interest rates
fall the value of bonds rises. This is caused by the fact that
increased interest rates tend to the holders of government bonds
and favorable to the investor thus the investors prefer other
investment options that have better returns. (Stanley Myint and
Fabrice Famery 2012).
Investments in order of the most risky to the least risky and
detailed explanation.
Stocks are the riskiest investments despite the fact that they are
not directly affected by changes in the level of interest rates.
The only are indirectly affected due cost of debt that rises with

11. rising interest rates and thus require higher returns, reducing the
equity return to investors and they are also affected by overall
company performance. The second most risky investments are
government bonds, this is due to the fact that government bonds
are affected by changes in the level of interest rates so
whenever they fluctuate the value of a bond fluctuates inversely
and thus they are prone to lose of value especially when interest
rates rise. The least risky investments are bank CDs, this is
because an investor who invest in them is assured of the
principal amount, as they are insured by the FDIC meaning that
they are secured and such investors cannot lose their
investments.
Types of risk and the investments they affect
The types of risks that affects each investment are interest rate
risk, this risk affects fixed rate investments such as bonds in
most cases but also impact on other investments such as stock
indirectly. It is a risk associated with the rise and fall of interest
rates in the economy. Bonds fluctuate in value with rising levels
of interest rates, business risk is another risk that is occasioned
by the effects of business performance in cases whereby
businesses run bankrupt and the aftermath effect flows to the
investors in ways of losing value. It is a risk that mostly affects
stocks, but can extend to government bonds and CDs
situations whereby businesses in the whole environment are
affected. Credit risk is the risk associated with the inability of
a government over a business to repay both the principle and
interest associated with the investments, the lack of payments of
this investment results in loss of value to investors. Inflationary
risk is a risk associated with the fluctuation in value of assets
due to the inflation rate of the economy, the value of an asset
declines with the rising rate of inflation in the economy which
leads to devaluation of investments leading to the loss of value.
Liquidity risk is the risk associated with the inability of an
investor to resell the investment and recovery the value of
investments. Market risk affects all investments in a similar
manner. It is mostly systematic risks caused by uncontrollable

12. market factors. Lastly, currency exchange risk , this is a risk
brought about by the difference in monetary values of foreign
investments and mostly affects foreign bonds and stocks due to
different currency values in invested countries. (William C.
Spaulding ,1982)
Reference
Stanley Myint and Fabrice Famery (2012), The handbook of
corporate financial risk management.
William C. Spaulding (1982) , Investment risks available (
online) at http://thismatter.com/money/investments/investment-
risks.htm
Retail investor. org available (online) at
http://www.retailinvestor.org/risk.html#overview.
http://ww.financialsamurai.com/ranking-the-best-passive-
income-investments/
http://www.bankrate.com/finance/retirement/stocks-bonds-and-
mutual-funds-1.aspx
https://www.invesco.com/static/us/investors/contentdetail?conte
ntId=2a2774d020ed2410VgnVCM100000c2f1bf0aRCRD
Criteria
Points
Identifies 3 stocks and 2 additional investments
10
Details which investment is most affected by interest rates
20
Ranks the 5 investments by risk level and explains rationale
40
Discusses the types of risk that affect each investment
20
Grammar, APA, organization and minimum page requirement
10
Total

13. Hi Rodney,
You will receive100 points for the Week 6 Course Project
Assignment. Good job summarizing the risk levels for your
investments. Please let me know if you have any questions.
Latricia
100
6
Company Selection & Stock WatchCompany Selection and
Stock WatchNo.DateStock NameStock SymbolCurrent
PriceExchange Traded OnFinancial
Facts17/23/15AppleAAPL$125.16electronic equiptmentAverage
Earning Estimate: Current Year= 912, Next Year= 9.78Average
Revenue Estimate: Current Year 233.01B, Next Year=
244.77BGrowth Estimate: Current Year: 41.40%, Next Year:
7.20%27/23/15GoogleGOOG$644.28electronic
equipmentAverage Earning Estatement: Current Year=28.93,
Next Year=33.72Average Revenue Estimate: Current Year
74.17B, Next Year= 85.31BGrowth Estimate: Current Year:
15.10%, Next Year: 16.60%37/23/15Avon Products
Inc.AVP$5.65personal productsAverage Earning
Estatement:Current Year:.32, Next Year=.55 Average Revenue
Estimate: Current Year 7.46B, Next Year= 7.59BGrowth
Estimate: Current Year: -57.30%, Next Year:
71.90%47/23/15L'Oréal SALRLCY$36.87personal
productsAverage Earning Estatement:Current Year:N/A, Next
YearN/AAverage Revenue Estimate: Current Year 23.36B, Next
Year= N/AGrowth Estimate: Current Year: N/A, Next Year:
N/A57/23/15Mattel Inc.MAT$23.53toys and gamesAverage
Earning Estatement:Current Year:1.36, Next Year=1.53 Average
Revenue Estimate: Current Year 5.77B, Next Year=
5.70BGrowth Estimate: Current Year: -8.10%, Next Year:

14. 12.50%ResourcesYAHOO FINANCE. (n.d.). AAPL. Retrieved
July 23, 2015, from
http://finance.yahoo.com/q/pr?s=AAPL+Profile YAHOO
FINANCE. (n.d.). AAPL ANALYST ESTIMATES. Retrieved
July 23, 2015, from
http://finance.yahoo.com/q/ae?s=AAPL+Analyst+Estimates
YAHOO FINANCE. (n.d.). GOOG ANALYST ESTIMATES.
Retrieved July 23, 2015, from
http://finance.yahoo.com/q/ae?s=GOOG+Analyst+Estimates
YAHOO FINANCE. (n.d.). GOOG PROFILE. Retrieved July 23,
2015, from
http://finance.yahoo.com/q/pr?s=GOOG+Profile YAHOO
FINANCE. (n.d.). AVP ANALYST ESTIMATES. Retrieved July
23, 2015, from
http://finance.yahoo.com/q/ae?s=AVP+Analyst+Estimates
YAHOO FINANCE. (n.d.). AVP PROFILE. Retrieved July 23,
2015, from
http://finance.yahoo.com/q/pr?s=AVP+Profile YAHOO
FINANCE. (n.d.). LRLCY ANALYST ESTIMATES. Retrieved
July 23, 2015, from
http://finance.yahoo.com/q/ae?s=LRLCY+Analyst+Estimates
YAHOO FINANCE. (n.d.). LRLCY PROFILE. Retrieved July
23, 2015, from
http://finance.yahoo.com/q/pr?s=LRLCY+Profile YAHOO
FINANCE. (n.d.). MAT ANALYST ESTIMATES. Retrieved
July 23, 2015, from
http://finance.yahoo.com/q/ae?s=MAT+Analyst+Estimates
YAHOO FINANCE. (n.d.). MAT PROFILE. Retrieved July 23,
2015, from
http://finance.yahoo.com/q/pr?s=mat
CriteriaPointsCriteriaPointsIdentifies five company
stocks20Provides date, ticker symbol, stock price and exchange
for each stock20Lists three relevant financial facts about each
company/stock60Total100Great job on your assignment. You
will receive 100 points. Good job choosing five stocks and
including the required information about them in the chart.

15. Hope you enjoy watching how they perform throughout the
quarter! Please view the grading rubric below and let me know
if you have any questions.Latricia