use Nvidia vs Intel Decision Analysis: Profit margin and current ratio Profit margin A useful measure of a company's operating results is the ratio of its net income to net sales. This ratio is called profit margin. This ratio shows the percent of profit in each dollar of sales. Profit margin = Net income/Net sales Visa's profit margins is superior to Mastercard's in each of the last three years. For Mastercard to improve its profit margin, it must either reduce expenses or increase revenues at a relatively greater amount than expenses. Company Figure (Smillions) Current Year 1 Year Ago 2 Years Ago Visa Net income $12,080 $10.301 $6,699 Net sales $22.977 $20,609 $18.358 Profit margin 53% 50% 3696 Mastercard Profit margin 4896 39% 3156 Current ratio 6.99 An important use of financial statements is to help assess a company's ability to pay its debts in the near future. Such analysis affects decisions by suppliers when allowing a company to buy on credit. It also affects decisions by creditors when lending money to a company, including loan terms such as interest rate and due date, the current ratio is one measure of a company's ability to pay its short-term obligations. Current ratio = Current assets/Current liabilities A current ratio of over 1.0 means that current obligations can be covered with current assets. Costco's current ratio was slightly below 1.9, which means Costco could face challenges in covering current liabilities, although Costco has a better ratio than Walmart, management much continue to monitor current assets and liabilities. Company Figure (s millions) Current Year 1 Year Ago 2 Years Ago Costco Current assets $23,485 $20.289 $17.317 Current liabilities $23,237 $19.926 $17,495 Current ratio 1.01 1.02 Walmart Current ratio 0.80 0.76 0.86 Decision Analysis: Acid-test and Gross margin ratios Acid-test ratio (Quick ratio) One measure of a merchandiser's ability to pay its current liabilities is the acid-test ratio. The acid-test ratio, also called the quick ratio, is defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities. It differs from the current ratio by excluding less liquid current assets such as inventory and prepaid expenses that take longer to be converted to cash. Nike's acid-test ratio implies that it has enough quick assets to cover current liabilities. It is also on par with its competitor, Under Armour. Nike's current ratio suggests it has more than enough current assets to cover current liabilities. Analysts might argue that Nike could invest some current assets in more productive assets. An acid-test ratio less than 1.0 means that current liabilities exceed quick assets. A rule of thumb is that the acid-test ratio should have a value near, or higher than 1.0. Less than 10 raises liquidity concerns unless a company can get enough cash from sales or if liabilities are not due until late in the next period. Company Nike $ millions Total quick assets Total current liabilities Acid-test ratio Current ratio Acid-test ratio Current ratio Current Year $8.935 $16.525 1.1 2.1 1.1 1.9 1 Year Ago $8,743 $15,134 1.4 2.5 0.9 2.0 2 Years Ago $9,856 $5,474 1.8 2.9 0.9 2.2 Under Armour INDIN oon Gross margin ratio Without enough gross profit, a merchandiser can fail. The gross margin ratio helps understand this link. It differs from the profit margin ratio in that it excludes all costs except cost of goods sold (COGS). The gross margin ratio (gross profit ratio) is defined as gross margin (net sales minus cost of goods sold) divided by net sales. Gros margin ratio = Gross profit/Net sales For Nike, each $1 of sales yielded about 44.6 cents in gross margin to cover all expenses and still produce a net income. $ millions Current Year 1 Year Ago 2 Years Ago Gross profit $17,474 $15.956 515,312 Net sales $39,117 $36.397 534,350 Gross margin ratio 44.7% 43.8% 44.6% In this forum, please respond by Sunday, October 24th before 11:30 p.m. Below is the information that needs to be included in your post: Calculate the profit margin and current ratio for both company's Calculate the quick ratio and gross margin ratio for both company's Analyze the ratios for both company's