III.

Analysis and Interpretation for each ratio

CURRENT RATIO

The current ratio measures a company's ability to pay short-term debts and other

current liabilities (financial obligations lasting less than one year) by comparing current

assets to current liabilities. The ratio illustrates a company's ability to remain solvent.

Facebook Inc. has a current ratio of 10.68. It indicates the company may not be

efficiently using its current assets or its short-term financing facilities. This may also

indicate problems in working capital management. It can also be said that it is in its stable

position because it has a greater ratio compared to its industry average which can be

concluded that the company is stable and is capable of paying its obligations. While the

twitter company’s current ratio, 9. 967. Since the current ratio is the relationship between

the current assets and current liabilities, this goes to show that for every single dollar

liability, the company has 9. 967 available assets to compensate it anytime it turns due.

At first glance, one can say that this is a really good figure for the company, especially its

creditors. However, if one digs deeper, one may realize that there is too much idle current

assets. This means that the said current assets are not being used for more productive

schemes such as investing them to make more money. The figures are all well and good

for the short run, however, for the long run, it may not be as beneficial as it seems. Assets

which could have been invested to produce gains in order to pay long term liabilities

were not invested, hence, a huge opportunity cost for the company.

The higher the current ratio, the more capable the company is paying its

obligations. A ratio under q suggest that the company would be unable to pay off its
obligations if they came due a t that point. While this shows the company is not in good

financial health, it does not necessarily mean that it will go bankruptcy- as there are many

ways to access financing, but it is definitely not a good sign. The current ratio is a

liquidity ratio that measures a company's ability to pay short-term obligations. It is

calculated as a company's Total Current Assets divides by its Total Current Liabilities.

Also, when we compare their figures with the industry average, it can be seen that

theirs is twice more than the industry average of 4.97. Having higher figures than the

industry average isn’t a bad thing in itself. In fact, in most cases it can be a good thing as

it implies that the company is doing a lot better than most of its competitors. How over,

the more than a hundred percent gap between the two could indicate that the company is

indeed not utilizing its current assets well.

The current ratio can give a send of the efficiency of a company’s operating cycle

or its ability to turn its product into cash. Companies that have trouble getting paid on

their receivables or have long inventory turnover can turn into liquidity problems because

they are unable to alleviate their obligations. Because business operation differ in each

industry, it is always more useful to compare companies within the same industry.

Acceptable current ratios vary from industry to industry and are generally between 1 and

3 or healthy business.
QUICK RATIO

As defined in the book OF Eugene Brigham fundamentals of financial

management “Liquidity describes the degree to which an asset or security can be quickly

bought or sold in the market without affecting the asset's price.” Based on my

understanding when we talk about liquidity money is an easily accessible in the form of

cash and cash equivalents. This is a measure of a liquidity ratio. The most liquid asset and

what else everything has compared to is cash. Why cash? Cash it is because it can always

be used easily and immediately. This is the historical analysis before we go further of a

quick ratio.

A quick ratio is one of the financial analysis ratios which can help us in our

business economy a financial ratio used to gauge a company’s liquidity it is also known

as acid test ratio. As defined in the book fundamentals of financial management “a quick

ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a

company’s ability to meet its short-term obligations with its most liquid assets. For this

reason, the ratio excludes inventories from current assets, and is calculated as follows:”

“Quick ratio = (current assets – inventories) / current liabilities, or

= (cash and equivalents + marketable securities + accounts receivable) / current

liabilities”

The quick ratio in facebook is 10.680 and its industry average is 1.45% much

different in a current ratio 1.97% because it does not inventory from current assets. While
in twitter the computed quick ratio which is 9.97 and the industrial average which is 1.45,

we can say that twitter has a higher quick ratio than the average industrial ratio. Yes it

indicates a higher ratio and may give us the impression of a favorable result, but if you

take into account and go through all the variations and operations that will include quick

ratio, you will see that it is too high and that the company has too much unused current

assets that made this result unfavorable.

Thus we conclude that a higher quick ratio is preferable because it means greater

liquidity. However a quick ratio which is quite high, is not favorable to a company as a

whole because this means that the company has an unused current assets which could

have been used to create additional projects that can help the company on increasing its

profits. In other words, very high value of quick ratio may indicate inefficiency.

Effectively the quick ratio or acid test ratio determines if a company can afford to pay its

bill due within the next year without having to sell off inventories or other current assets

in the company. A healthy enterprise will always keep ratio at a 1.0 or higher to a

company’s business cycle.

DAYS SALES OUTSTANDING

For the computation of days sales outstanding for Facebook, you will divide the

ending accounts receivable by the total credit sales for the period and multiplying it by

the number of days in the period. In this computation, the ratio is calculated quarterly so

we multiply it by 90 days. Comparing the calculated DSO which is 40.19 or 40 days to

the industrial average of 40.75, we can see that the company is a bit lower than the

industry average. And it appears that the company’s ratio gave us a good result because

the company can collect cash earlier from the customers. For twitter the DSO computed

is 85 days which is higher than the computed DSO of Facebook by 45 days.

The days sales outstanding calculation measures the number of days it takes a

company to collect cash from its credit sales. This calculation shows the liquidity and

efficiency of a company's cash collections. It measures the number of days it takes a

company to convert its sales into cash. In other words, it shows how well a company can

collect cash from its customers. The sooner cash can be collected, the quicker this cash

can be used for other operations. In other words, it shows how well a company can

collect cash from its customers. The sooner cash can be collected, the sooner this cash

can be used for other operations. Both liquidity and cash flows increase with a lower days

sales outstanding measurement.

A measure of the average number of days that a company takes to

collect revenue after a sale has been made. DSO is often determined on a

monthly, quarterly or annual basis and can be calculated by dividing the amount
of accounts receivable during a given period by the total value of credit sales during the

same period, and multiplying the result by the number of days in the period measured.

. On the other hand, companies with high days sales ratios are unable to convert

sales into cash as quickly as firms with lower ratios. This may lead to cash flow problems

for the long duration between the time of sale and the time the company receives

payment. Also, this indicates that the company has a poor collection procedures and

customers who are unable or unwilling to pay for their purchases.

A higher ratio like the twitter indicates a company with poor collection

procedures and customers who are unable or unwilling to pay for their purchases unlike

fcaebook with a lower ratio. Companies with high days sales ratios are unable to convert

sales into cash as quickly as firms with lower ratios.

INVENTORY TURNOVER RATIO

Inventory turnover is a ratio telling us how many times a company’s inventory is

sold and replaced over a period. Inventory turnover can be computed as sales divided by

inventories. Facebook Inc’s sale for the three months ended in September 2015 was

$4,501 Million. Facebook Inc’s average inventory for the quarter of September 2015 was

$0 Million. Inventory turnover measures how fast the company turns over its inventory

within a year. The higher the inventory turnover is the light the inventory. This means

that the company spends less money on storage and inventory. If the inventory is too low

it may affect the sales of the company because the company may not be a good enough to

meet the demand. As what you can see in our computation the inventory turnover ratio is

zero. Which means this is a sign of inefficiency. This also means that the company has a

poor sales or excess inventory. A low or zero turnover rates can also indicate a poor

liquidity. It might also mean possible overstocking. But when the company has a higher

inventory turnover ratio it implies strong sales. A high inventory turnover ratio identifies

a better liquidity. As what I’ve read high inventory levels can sometimes be unhealthy

because it represent an investment with a rate return of zero.

While Twitter Inc.’s sale for the three months ended in September 2015 was

$569.237 Million. Twitter Inc’s average inventory for the quarter of September 2015

was $0 Million. Inventory turnover measures how fast the company turns over its

inventory within a year. Facebook and Twitter has a common situation.

 If we compare the both company’s inventory turnover ratio (Facebook and

Twitter) to industry average, the industry average of twitter is higher by 0.11 against

Facebook. The industry average is way more effective because it has an average of

30.21%. The industry average is not too high but not too low so it means that it is

efficiently effective. As what you can see in the financial statements of Facebook Inc. and

Twitter Inc. that the both company are financially stable. It just has a zero inventory

because it is a social media industry. How can they have inventories right? They don’t

sell any products or goods. They just do service to earned profits. Also they earned profit

through their social network website. They earned their profit through advertisements.

Facebook Inc’s and Twitter Inc. may have a zero inventory turnover ratio but it is still a

stable company and the company functions very well who earned their profit through

advertisements and there are millions of people using this application throughout the

globe so we can’t really say that Facebook Inc. and Twitter Inc. are poor in liquidity. As

the largest and well-known social networking sites in the world, Facebook and Twitter

are also the most profitable social networking sites. Even with 0 inventory turnover ratio

the said companies still operates well and can pay their short term obligations.
FIXED ASSET TURNOVER

Fixed assets turnover ratio is an activity ratio that measures how successfully a

company is utilizing its fixed assets in generating revenue, specifically property, plant

and equipment. The formula for this ratio is to subtract accumulated depreciation from

gross fixed assets, and divide into net annual sales. This formula is useful in analyzing

growth companies to see if they are growing sales in proportion to their asset bases. The

fixed assets turnover ratio really has little meaning except when it is put in the context of

industrial average.

Facebook’s Fixed Asset Turnover Ratio is 0.844. This means to say that for every

of fixed asset, Facebook is generating 0.844. This figure is twice more than the industry

average which is just a meager 0.41. This goes to show that Facebook manages its fixed

assets really well, such that it generates more than twice the revenue other multimedia

company generate with the same amount of fixed assets. Statistically speaking, this is a

very promising number since well-managed assets can greatly help improve over-all

profitability of the company. While in Twitter comparing the industrial average ratio

which is 0.9 to the computed fixed asset ratio of 0.814, we can see that the ratio of twitter

for September 2015 is obviously lower than the average industry. And as stated above, a

low asset turnover ratio will surely signify excess production, bad inventory management

or poor collection practices. A clearly suggests that the fixed assets are being

underutilized or there might be more assets than can be effectively used elsewhere. Thus,

it is very important to improve the asset turnover ratio of a company.

 Generally, a higher fixed assets turnover ratio indicates that the operation is

running at peak efficiency. However, there might be situations when a high fixed asset

turnover ratio might not necessarily mean efficient use of fixed assets and that the

company is running at full capacity or is bursting at the seams and will need further

capital investments or upgrades. If the fixed asset turnover ratio is too high, then

the company is likely operating over capacity and needs to either increase its asset

base which is the property, plant, and equipment, to support its sales or reduce its

capacity.

On the other hand, a low ratio means inefficient or under-utilization of fixed

assets. In other words, it means that the sales are low or the investment in plant and

equipment is too high. This sometimes happen when the company made a large

investment in fixed assets, with a time delay before the new assets start generating

revenues. It may suggest that the company is obsolete and needs to be upgraded, an

undertaking that can negatively impact cash reserves, the debt exposure, and cash flow

for the medium to long term. But naturally, it will take some time for these acquisitions to

start making a positive impact on revenue and, eventually, the asset turnover figures.
TOTAL ASSET TURNOVER

Every company invests in assets to improve the performance of its operations.

Total asset turnover is a ratio that shows the amount of sales generated for every unit of

asset. The ratio can be useful in measuring how efficient a firm and enables a firm to

evaluate its effectiveness in utilization of all the firm’s assets in its effort to generate

revenue. The ratio is useful to those firms to check if they are generating revenues

proportionately with their assets. The companies are able to tell whether they are satisfied

for the costs incurred in acquiring their assets and as well to evaluate its future

performance. Total asset turnover ratio measures the turnover of all of the firm’s assets. It

is then calculated by dividing sales over total assets.

“Asset turnover ratio is the ratio of a company's sales to its assets. It is an

efficiency ratio which tells how successfully the company is using its assets to generate

revenue.” The computed TATR of Twitter is 0.091 compared to the industry average

which is 0.55, the total asset turnover ratio is higher. While in Facebook, it generates

revenue of 4,501,000 and has a total asset of 46,469,000 during the third quarter. This

would mean that the total asset turnover ratio is .097. Obviously Facebook Company has

a lower ratio compared to its industry average of 0.60. A 0.10 total asset turnover ratio

means that every 1 dollar worth of assets generated .10 worth of revenue.

“In general, a low asset turnover ratio suggests problems with excess production

capacity, poor inventory management, or lax collection methods. Increases in the asset

turnover ratio over time may indicate a company is "growing into" its capacity (while a
decreasing ratio may indicate the opposite), but remember that asset purchases made in

anticipation of coming growth (or the sale of unnecessary assets in anticipation of

declining growth) can suddenly and somewhat artificially change a company's asset

turnover ratio.”

While the higher the ratio the more turns but a particular ratio is good or bad

depends on the industry in which the company operates. Since Facebook is an asset

intensive company it tends to have a lower total asset turnover ratio. The lower the total

asset turnover ratio, as compared to historical data of the firm and industry data implies

the inefficient use of a company’s assets. This may indicate a problem with one or more

of the asset categories composing total assets. If too many assets, its cost of capital will

be too high which will lead to depress its profit.

Low-margin industries tend to have higher asset turnover ratios than high-margin

industries because low-margin industries must offset lower per-unit profits with higher

unit-sales volume. “The higher the number, the better. If there is a low turnover, it may

be an indication that the business should either utilize its assets in a more efficient

manner or sell them. But it also indicates pricing strategy: companies with low profit

margins tend to have high asset turnover, while those with high profit margins have low

asset turnover.”
DEBT RATIO
TIMES INTEREST EARNED RATIO

Financial statement analysis introduced many ratios and one of the ratios is time

interested earned ratio sometimes called the interest coverage. What is time interested

earned ratio according to the book of Eugene F. Brigham Fundamentals of financial

management 2013th edition “a Time interested earned ratio is a coverage ratio that

measures the proportionate amount of income that can be used to cover interest expenses

in the future.In some respects the times interest ratio is considered a solvency ratio

because it measures a firm's ability to make interest and debt service payments” in other

sources base of what I have researched in the net they have also introduced other

meaning “a Times interest earned is a key metric to determine the credit worthiness of a

business. Essentially, the number represents how many times during the last 12 months'

EBIT or Annual (earnings before interest and taxes) would have covered the past 12

months or annual interest expenses.” In calculating the time interested earned ratio is a

follows.

FORMULA

The times interest earned ratio is calculated by dividing income before interest and

income taxes by the interest expense.

The twitter social media industry ratio is 4.092 social media industry results ratio

is 4.092 times it means that the social media industry is greater than his annual interest

expense in other words the social media industry can afford to pay additional interest
expenses and the business is less risky the bank should not have a problem accepting the

companies loans since the company net income is profitable. Facebook has 0 TIE ratio.

Times Interest Earned or Interest coverage is a great tool when measuring a company's

ability to meet its debt obligations. When the interest coverage ratio is smaller than 1,

means that the company is likely to have problems in paying interest on its borrowings

and that income before interest and tax of the business is just enough to pay off its

interest expense.

The Company would then have to either use cash on hand to make up the

difference or borrow funds. In contrast, the higher the times interest earned ratio, the

more likely it is that the corporation will be able to meet its interest payments.

Higher value of times interest earned ratio is favorable meaning greater ability of

a business to repay its interest and debt. Generally, a ratio of 2 or higher is considered

adequate to protect the creditors’ interest in the firm. A very high times interest ratio may

be the result of the fact that the company is unnecessarily careful about its debts and is

not taking full advantage of the debt facilities.Lower values are unfavorable. That is why

times interest earned ratio is of special importance to creditors. A high ratio ensures a

periodical interest income for lenders. The companies with weak ratio may have to face

difficulties in raising funds for their operations.

PROFIT MARGIN SALES
BASIC EARNING POWER

Basic earning power (BEP) ratio is a measure that calculates the earning power of

a business before the effect of the business' income taxes and its financial leverage. It is

calculated by dividing earnings before interest and taxes (EBIT) by total assets.

Basic earning power (BEP) ratio is similar to return on assets ratio as both have

the same denominator i.e. total assets. However, unlike return on assets which measures

the net earning power, the basic earning power (BEP) ratio calculated the operating

earning power i.e. their numerators are different.

The BEP ratio is simply EBIT divided by total assets. The higher the BEP ratio,

the more effective a company is at generating income from its assets. The Basic Earning

Power ratio compares earnings apart from the influence of taxes or financial leverage, to

the assets of the company. This allows more direct comparison of similar that use

different financing strategies or have different tax situations.

Referring to Facebook’s Basic earning power ratio which resulted 3.08 % for the

month of September 30, 2015 it is perceived that it has a lower BEP ratio percentage and

that it is not good in the part of the company because it will not effect and upshot towards

the effectiveness of the company to generate income from its assets. Furthermore, the

industry average is 12.06% which is higher than its BEP Ratio, considering the positive
effect of the company’s stability and profitability it can be noted that in this case and in

this result this would not be a good conclusion.

While Twitter’s Basic earning power ratio which resulted 2.42 % for the month of

September 30, 2015 and it has also an industry average of 12.04%. BEP ratio, like all

profitability ratios, does not provide a complete picture of which company is better or

more attractive to its investors. Investors should favor a company with a higher BEP over

a company with a lower Basic earning power because that means it extracts more value

from its assets, but they still need to consider how things like leverage and tax rates affect

the company. .

We know that Basic Earning Power ratio is often used as a measure of the

effectiveness of operations in once company. Basic Earning Power measures and

processes the basic profitability of the assets because it excludes and eliminates the

consideration of interest and tax. This ratio should be examined in conjunction with

turnover ratios to help pin-point potential problems regarding asset management.

Regarding, Facebook and Twitter’s BEP ratio for the month of September 30, 2015 that

captures and maybe low compared to its industry average, it may not bring operative

effect to the company, and because of its low ratio than of its industry average it is not

getting a high return of asset as is the average company in its industry.

RETURN ON ASSETS

The return on assets ratio, often called the return on total assets, is a profitability

ratio that measures the net income produced by total assets during a period by comparing

net income to the average total assets. In other words, the return on assets ratio or ROA

measures how efficiently a company can manage its assets to produce profits during a

period. Return on Total Assets show the rate of return (after tax) being earned on all the

firm’s assets regardless of financing structure. It is a measure of how effectively the

company is using all stakeholders’ assets to earn returns.

As per computed from Twitter’s Return on Asset ratio ensued in to -0.020939523

in the year 2015, it can be assumed and supposed to meditate that it has a lower ratio

percentage than its industry average and that it is not good in terms of the condition of the

company. So in this case and circumstance it can be clearly stated that the company

doesn’t spectacle and manifest an indicator that the company is profitable because of its

relative low on return of its asset.Return on Asset ratio only makes sense that a higher

ratio is more favorable to investors because it shows that the company is more effectively

managing its assets to produce greater amounts of net income.

The Return on assets of September 25 2015 of Facebook social media industry

7.91 which is the Facebook industry has successfully can turn earn on its investments in

assets which is good in a business cycle the investors would be much more interested in

purchasing in company’s stock “Throwing good money after bad money is never a good
idea,” says Schrage. Investors certain initiative in investing into a huge company, the

industry average of Facebook on September 25 2013 13.13% and it is better because the

company is earning more money on its asset unlike if the Facebook Company would

result to 13.13% below it would result to a loss on return assets compared to the industry

average. It indicates inefficient use of company’s asset conjures up visions of a dusty

operation with few customers, high costs and fossilized prices. This is not an encouraging

omen of on-going survival. As I compared the Return on assets ratio and Industry

average they are performing management effectiveness which give them a excellent

performing industry average and with that the investor would invest more stocks in

evaluating the performance. The company has its potential and skills with their return on

assets which increases their assets.

As defined in the book of fundamentals of financial management “Return on

assets (ROA) is a profitability ratio that helps determine how efficiently a company uses

its assets. It is the ratio of net income after tax to total assets. In other words, ROA is an

efficiency metric explaining how efficiently and effectively a company is using its assets

to generate profits.”

Thus, higher values of return on assets show that business is more profitable. In

other words, ROA shows how efficiently a company can covert the money used to

purchase assets into net income or profits. A low return on assets compared with the

industry average indicates inefficient use of company's assets. Since all assets are either

funded by equity or debt, some investors try to disregard the costs of acquiring the assets
in the return calculation by adding back interest expense in the formula. It only makes

sense that a higher ratio is more favourable to investors because it shows that the

company is more effectively managing its assets to produce greater amounts of net

income. A positive ROA ratio usually indicates an upward profit trend as well. ROA is

most useful for comparing companies in the same industry as different industries use

assets differently.
RETURN ON EQUITY

The Facebook company’s return on equity is 2.151. When we talk about return on

equity it is a relationship between the net income and common equity. The return on

equity or ROE is one of the components of profitability ratio that measures the company

to generate earnings from its shareholders investments in the company. This show how

much profit every dollar of common equity generates. Industry average has high return

on equity because they require less capital invested. It is not a conclusion that those who

have higher result of return on equity are better investment than the lower ones. As you

can see in the Facebook Inc’s financial statements the income and common stockholders’

equity of Facebook Inc’s is increasing every end of quarter. This means that the

Facebook Inc’s is profitability stable. The higher the return on equity the better. Low

return on equity is usually a problem. If we compare the company’s return on equity to

the industry average, industry average is way higher than the Facebook Inc’s return on

equity. It basically means that the other companies are way more profitable than

Facebook Inc’s. The industry’s average is 22.42% and Facebook Inc’s got only 2.151%.

So it means that its competitors are way better than Facebook Inc’s profitability. But as

what we can see in Facebook Inc’s financial statements it increases by the end of the

quarter and its assets are way higher than its liabilities.

The Twitters company’s return on equity is -3.08. Return on equity is a

relationship between net income and the company’s stockholders equity. The return on

equity ratio or ROE is one of the components of the profitability ratio that check or

measures the company’s ability to generate income from its shareholders investment. It
means that the result of the return on equity ratio shows how much profit each dollar of

common stockholders’ equity generates. Return on equity measures how effective a

company can use the money from its shareholders to earn profits and to grow the

company. Return on equity ratio calculates how much value of money is made based on

the investors’ investment in the business. Basically, every investor wants to see a high

value ratio of return on equity because high result of return on equity ratio indicates that

the funds of the company are being used effectively. Everyone in this industry knows that

higher ratios are almost better than lower ratios. But as we can see in the result of the

return on equity ratio, it shows us a negative ratio. Also the company is experiencing a

net loss for consecutive quarters already. When we compare the result of return on equity

of the company to the industry average, it can be seen that the figure of the industry

average is way more higher than the company’s figure. This is really a bad thing for the

company. Having net losses and a negative result of return on equity is a bad image in the

company. It means that their competitor is doing a lot better than this company. As we

look in the financial statements for the year, it can be seen that there are no significant

changes in its net losses. This means that indeed the company is not operating effectively.

The company doesn’t have any long term investments. This particularly means that

lacking of long term investments is bad for the company because the company doesn’t

find any other way to earn profit and they focus more of their operating revenues as their

only source of income. Also the company has a lot of assets but doesn’t use their assets

very well to invest and to find another source of income to avoid net losses in the

company. Twitter is one of the most popular social media in the world and it is hard to

believe that they are suffering from net losses. Twitter just lack of finding any other way
to earn revenue or source of income. Even having net losses the company can still survive

in the short run and be able to pay their debt and dividends shared. But in the long run

and the net losses still continues this might be the cause of the downfall of the company if

this is not handled very well.

The higher the ratio percentage is the more efficient the company is utilizing its equity

base and the better return is to investors. ROE or return on equity is an important measure

of the profitability of the company. Higher values are favorable for company meaning

that the company is efficient in generating income or its investment. Investors should

compare the ROE to other different companies and to check also the trend ROE over

time. Also when we compare their figures with the industry average, it can be seen that it

is higher than the company’s return on equity. Those who have a low return on equity

ratio have a limited competition.

IV. Recommendations base on each ratio

CURRENT RATIO

The current ratio is a commonly used liquidity ratio that measures a company's

ability to pay its current liabilities with its current assets. Current ratio is a figure resulted

from dividing current assets by current liabilities of a firm. This figure is important

because it measures the liquidity stand of a firm. Normally, it is assumed that higher the

ratio, higher is the liquidity and vice versa. It would be unfair if the liquidity is concluded

just on the basis of the ratio. Without going further to know what is making that ratio, it is

difficult to form an opinion over it.

In theory, the higher the current ratio, the better. Tracking the current ratio and

other liquidity ratios helps an investor assess the health and the stability of a company. A

high current ratio indicates that a company is able to meet its short-term obligations.

With regards to Facebook’s current ratio result last September 30, 2015 it is

clearly comprehended that they do have higher current ratio having 10.68which is a good

emblem and indication that the company could be able to pay its obligation. But this

doesn’t mean that the level of the company is stable because the current ratio is used

extensively in financial reporting. However, while easy to understand, it can be

misleading in both a positive and negative sense - i.e., a high current ratio is not

necessarily good, and a low current ratio is not necessarily bad.Here's why: Contrary to

popular perception, the ubiquitous current ratio, as an indicator of liquidity, is flawed

because it's conceptually based on the liquidation of all of a company's current assets to

meet all of its current liabilities. In reality, this is not likely to occur. Investors have to

look at a company as a going concern. It's the time it takes to convert a company's

working capital assets into cash to pay its current obligations that is the key to its

liquidity. In a word, the current ratio can be "misleading." Generally, a low current ratio

could suggest problems with inventory management, ineffective or lax standards for

collecting receivables, or an excessive cash burn rate. Increases in the current ratio over

time may indicate a company is "growing into" its capacity (while a decreasing ratio may

indicate the opposite). But remember that big purchases made in preparation for coming

growth (or the sale of unnecessary assets) can suddenly and somewhat artificially change

a company's current ratio.

Since Twitter company doesn’t have a very huge cash in bank, it is suggested that

the company sell a part of its short term liabilities and use the proceeds to buy into long

term investments. This can prove to be beneficial to the company since long term

investments tend to have higher rates of return than short term investments.

In comparison, the company also has long term debts that are thrice bigger than

its current liabilities. This could also contribute to the reason why its current ratio is

alarmingly bigger than the industry average. While it is true than short term debt mostly

has bigger interest rates than long term debts, which is why there isn’t a concrete course

of action needed to be taken when it comes to the company’s debt structuring. Thus, the

sole focus of this recommendation is to utilize current assets better. It will be a good
move to cut the short term investments by half for the intended purchase of long term

investments. This wouldn’t be a bad move for the company since even after the short

term investment cut, the company’s current ratio would still be well above the industry

average.

More than that, it is suggested that the company also spend more on Property,

Plant and Equipment since it has been noted that this account has been quite stagnant

throughout the year. The losses suffered through this year may have been caused by

deteriorating quality of service which is why it would be a good move to improve it by

purchasing necessary enhancements that would lure customers and users back in. New

features should be added so that it would become more enticing to the public.

Furthermore, since Twitter is a service company, it doesn’t have inventories and

therefore its receivables also compose only a little part of its current assets. Since it has

been noted that the cash and receivables are also slowly moving, it is also suggested that

some of the cashed out short term investments be used to increase the pool of cash in

bank, and in return long term investments should be paid so that less interest will be paid

and the company’s net income would not be affected so much by interest charges. Even

after the suggested decrease in assets, the company’s current ratio would still be above

the industry average and there is now a greater chance for it to recover from losses

suffered this year.

QUICK RATIO

Quick ratio is valuable to the financial directors as well as creditors. These

stakeholders considered quick ratio as a measure of liquidity. This ratio must be taken

into account, and must be managed and controlled properly. In order to improve the quick

ratio, a company must pay off the current bills and at the same time increase sales in

order for it to increase the cash on hand or the accounts receivable.

The Twitter company may also consider improving its inventory turnover ratio. By

faster conversion of inventory into debtors and cash, the quick assets would rise resulting

in an improvement in the quick ratio. Another is disposing unproductive assets. If the

company has any unproductive assets, it is better to sell them and have better liquidity.

Reduction of such assets would result in better cash position and therefore improvement

in the numerator of quick ratio. Third is improving the collection period. Reduction in

collection period will have direct impact on the quick ratio. Lower collection period

means faster rolling of cash. Improvement in collection period can result in more number

of debtor’s cycle during the year resulting in better current assets. Fourth is maintaining

drawing levels. Increase in drawings means reduction in owner’s funds in the current

assets. This would give rise to a higher level of current liabilities to fund the current

assets. The higher the drawings, the lower the current ratio would be. And lastly, sweep

accounts. Sweep accounts can be used to earn interest on any extra money by ‘sweeping’

or moving the idle cash into an account which brings interest when the finance is not

required and sweeping them back into the working account when it is required. This will
enable the management to keep the quick ratio high by keeping the cash in hand and still

not loosing on the opportunity of better interest rates by reducing cost of idle funds.

Facebook social media industry on September 25 2013 they should have the traits

and aspects in improving the company. A Quick ratio is valuable to the in-house of the

big bosses in a company as they are the one who knows the running scheme of the

business and evaluating the possible circumstances on facing it a business

entrepreneurship like as a financial directors as well as creditors, loaners, banks,

capitalists and so on. A business should have to closely work with all these stakeholders

and they consider to, improve and converting the cash quickly in a company quick ratio

as a measure of liquidity of a business and accordingly extend their support. It is better to

keep this ratio controlled and managed. One of the quickest ways to improve the quick

ratio is to pay off the current bills and at the same time increase sales so that the cash on

hand or AR increases. As the quick ratio is similar to the current ratio, but does not

include stock in current assets, it can be improved by similar actions that increase the

current ratio. The effects in improving the companies quick ratio is profitability how does

the profitability gives effect in improving the quick ratio by reviewing the profitability in

a various products and services Assess where prices can be increased on a regular basis

to maintain or increase profitability. As your costs increase and markets change, prices

may need to be adjusted as well. Also a accounts payable would rise the effect of a quick

ratio in improving the companies quick ratio by the company should negotiate longer

payment terms with you vendors when possible to keep your money longer. And lastly is

the Improving the Collection Period or ARs: Reduction in collection period will have
direct impact on the quick ratio. Lower collection period means faster rolling of cash.

Improvement in collection period can result in more number of debtor’s cycle during the

year resulting in better current assets. Moreover, the chances of long term debtors, sticky

debtors and bad debts also reduce. Right from the beginning the terms of payment have to

be made clear so as to get credit period as low as feasible. Through this effects in

improving the companies quick ratio a good advantage would happen in a company Due

to large inventory base, a company’s short term financial strength may be overstated if

current ratio is used. By using acid test ratio this situation can be handled and will limit

companies getting additional loan; the servicing of which may not be as easy as stated by

current ratio.In a dying industry, which usually may have very high level of inventory;

this ratio will provide more reliable repayment ability of the company as against the

current ratio which includes inventory.Inventory can be very seasonal in nature and may

vary in quantity over a yearly period. If considered, it may deflate or inflate liquidity

position. By avoiding inventory from the calculation, acid test ratio does away with this

problem.This are the recommendations that would help you in improving your company

and should avoid the possible losses in your company.

DAYS SALES OUTSTANDING

Inventory turnover ratio decides the number of times the inventory is purchased

and sold during the entire fiscal year. Inventory turnover ratio is one of the components to

evaluate the efficiency of a company in handling the goods or products it manufactured

or to buy and sell. This ratio is very important because it tells the company and investors

the company’s operation in converting the inventory purchases to final sales. We get the

inventory turnover ratio dividing sales by inventory. Some of the companies really prefer

to have a high inventory turnover ratio. If the company has low inventory ratio it

indicates that the company does more stacking. If we talk about efficient inventory

operation the product sale should be fast. But we are talking in a company which doesn’t

have an inventory. So my recommendation for this company is to focus on the demands

of the costumers or users of the said application or social media site. Facebook Inc’s must

increase it sales. They must focus on its marketing strategies to create the demand of the

industry. Facebook Inc’s earned profit through advertisements. They don’t sell any goods

or products they just do advertising and generate traffic to its advertiser’s website and

Facebook is being paid by advertisers for the traffic Facebook bring to them. As you can

see in the Facebook Inc’s financial statements the company itself is financially stable and

operates very well and earned profit and can pay its liabilities well. To earn more

costumers Facebook Inc’s must improve its services throughout the people using

Facebook worldwide. They should focus more on satisfying the needs and demands of

users of the said application or social media. For the Facebook Inc’s to have a high

inventory turnover ratio or that the inventory turnover ratio will not be zero they must

adjust its asset to have an inventory or to purchase inventories so that they will not have a
zero in inventory turnover ratio for their company to be liquid. So that Facebook Inc’s

has the ability to meet its current obligations as they come due. Even without inventory

the company still operates and earned profit through advertisers and investors. Facebook

just have to improve its service throughout the globe and satisfy its users to continuously

use the said social network website. Facebook is a service industry they earned profit

through providing people to communicate with their loved ones from afar. So basically in

order to have an average of inventory turnover the business must use some of its cash to

purchase inventory so that in reading the company’s book investors can say that

Facebook is liquidity stable.

INVENTORY TURNOVER

Inventory turnover ratio decides the number of times the inventory is purchased

and sold during the entire fiscal year. Inventory turnover ratio is one of the components to

evaluate the efficiency of a company in handling the goods or products it manufactured

or to buy and sell. This ratio is very important because it tells the company and investors

the company’s operation in converting the inventory purchases to final sales. We get the

inventory turnover ratio dividing sales by inventory. Some of the companies really prefer

to have a high inventory turnover ratio. If the company has low inventory ratio it

indicates that the company does more stacking. If we talk about efficient inventory

operation the product sale should be fast. But we are talking in a company which doesn’t

have an inventory. So my recommendation for this company is to focus on the demands

of the costumers or users of the said application or social media site. Facebook Inc’s must

increase it sales. They must focus on its marketing strategies to create the demand of the

industry. Facebook Inc, and Twitter Inc, earned profit through advertisements. They

don’t sell any goods or products they just do advertising and generate traffic to its

advertiser’s website. Facebook and Twitter are being paid by advertisers. As you can see

in the Facebook Inc, and Twitter Inc. financial statements the company itself is

financially stable and operates very well and earned profit and can pay its liabilities well.

To earn more customers Facebook Inc, and Twitter Inc. must improve its services

throughout the people using Facebook and Twitter worldwide. They should focus more

on satisfying the needs and demands of users of the said application or social media. For

the both said companies to have a high inventory turnover ratio or that the inventory
turnover ratio will not be zero they must adjust its asset to have an inventory or to

purchase inventories so that they will not have a zero in inventory turnover ratio for their

company to be liquid. So that Facebook Inc. and Twitter Inc. has the ability to meet its

current obligations as they come due. Even without inventory the company still operates

and earned profit through advertisers and investors. Facebook and Twitter just have to

improve its service throughout the globe and satisfy its users to continuously use the said

social network website. Facebook and Twitter are a service industry they earned profit

through providing people to communicate with their loved ones from afar. So basically in

order to have an average of inventory turnover the business must use some of its cash to

purchase inventory so that in reading the company’s book investors can say that

Facebook and Twitter are liquidity stable.

FIXED ASSET TURNOVER

Fixed asset turnover ratio helps financial analysts, management, and investors

alike to make critical decisions whether to invest more or not. The fixed asset turnover

ratio determines how efficiently the company is using its fixed assets to generate

sales. So this ratio should be evaluated in terms of their ability to produce income. Since

fixed asset turnover ratio measures the efficiency of a company in managing its resources

to generate sales, it is very obvious that higher turnover ratios are preferred to reflect a

better state of affairs at the company.

In order to improve fixed asset turnover ratio, the Twitter company must increase

its sales. A company’s fixed assets may be producing enough assets, but may not be

selling them quickly enough. You may examine the operation on all of your fixed assets

whether it is being used properly or not. Or improve the output you get from those assets

or find ways to move those assets more quickly, including discounting or initiating

promotional campaigns.

If you may have assets you don’t use, you can sell these for they do not produce

income for the company. You may also have assets that you use occasionally, so you can

examine these assets whether its occasional use justifies the expense of holding the asset.

On simple terms, the fixed assets that do not improve your bottom line on a regular basis

must be sold.

Another is accelerating collections. If you count sales when you actually collect

the money from customers, you may not be collecting quickly enough. This will keep

your sales figure low during any given period. For this reason, the company should find
ways on how to collect more quickly. You can shorten the amount of time you give

customers to pay, assign an employee to collect on old invoices or hire a collection

agency to collect on delinquent accounts.

And lastly, computerize inventory and order systems. You should analyze how

assets move through the company to the customer to see if it is being efficient. The

company may have a slow order system that holds up the process of getting the assets to

the customers and collecting payments on them. Computerize your orders, inventory and

billing so that you can improve cash flow. This will show up in your sales figures and

improve your asset-turnover ratio.

Facebook’s turnover ratio is well above the industry average of 0.41. Analysis

showed that both revenues and Property, Plant and Equipment have increased since the

past quarters. However, even though Facebook’s fixed assets, where increases have been

observed, are not stagnant, it is still highly recommended that they try to move a bit more

aggressively on the purchase of fixed assets. In doing so, they might still increase their

profit margin and overall profitability.

However, caution must still be exercised in considering the amount of fixed assets

to purchase since purchasing too much might affect the fixed asset turnover ratio

negatively instead. It is important to utilize each newly added property and equipment to

its optimal, if not fullest capacity. Purchasing too much new fixed assets will render some

equipment or property idle, or at the very least, operating in very low efficiency. On the

other hand, purchasing too little new fixed assets, could as mentioned in the previous
discussion, affect the company’s profitability due to possible decline in revenues. It is

very important to find the right balance between fixed assets and desired revenue.

Facebook may not have suffered from net losses in this year or the ones before this, but

that doesn’t mean they should stop striving to improve. There is an opportunity cost in

choosing not to purchase new fixed assets. The advantages and disadvantages must be

duly weighed, such that the cost would not exceed the benefit. The industry Facebook is

in is a very competitive one. Achieving the peak of success will not always guarantee it

will last. Examples can be taken from previous hit multimedia/social networking sites

like MySpace and Friendster. Technology is always advancing and competitors are

always sprouting anew. The steady increase and stream of revenues is not guaranteed,

therefore measures should be made such that tentative decreases in it wouldn’t affect the

overall standing of the company. The gap between Facebook’s figures and the industry

average serve as a safety net. However, it must be considered that figures which work

well on one company may not work very well on another. The management shouldn’t be

laidback and feel overconfident with the current tides of time. The suggested increase in

fixed assets is only up to the extent that there wouldn’t be a substantial drop in the fixed

asset turnover ratio as well as other vital ratios, most especially the liquidity and

profitability ratios.
TOTAL ASSET TURNOVER

The asset turnover ratio measures a company's efficiency and productivity. It is

often used as an indicator of the efficiency of using its assets in generating revenues. This

shows of how a company managed well its assets. The ratio gives an insight to the

creditors and investors into the internal management of the company.

I highly recommend to the company either of the following in order to have a

higher total asset turnover ratio is: First, Facebook Inc. should increase in generating their

revenue. Since it is the easiest possible way and revenue greatly affects in improving the

ratio. Second, Unused assets of the company should be liquidated quickly and analysed to

see whether there is a sense in retaining those assets. The company should sell those

assets that are not used regularly in the business. Third, another efficient way is instead of

buying fixed assets, the company should lease assets. Since the leased equipment is not

counted as fixed asset. Fourth, one of the reasons behind of having a low total asset

turnover ratio is because of inefficient use of assets. Facebook Inc. should analyse how

the assets are used and look for ways to improve the productivity of each asset. The result

should increase without any significant increase in any other expenses. Fifth, the

company should have a quick collection on its accounts receivable to make the sales

higher during the period and reduce period of time given to customers or users to pay.

Hiring an employee just for collecting pending invoices is an example.

 Companies need to keep a track on the asset turnover ratio. This ratio helps the

company to measure how productive the business is and how much revenue is generated

from its investment in the assets. A high asset turnover ratio is a sign of a better and

efficient management of assets on hand. So, the companies need to analyze and improve

their asset turnover ratio at regular intervals.

The lower the total asset turnover ratio (the lower the number of times), as

compared to historical data for the firm and industry data, the more sluggish the firm's

sales. This may indicate a problem with one or more of the asset categories composing

total assets - inventory, receivables, or fixed assets.

The owner should analyze the various asset classes to determine in which current

or fixed asset the problem lies. The problem could be in more than one area of current or

fixed assets. Since current assets also include the liquidity ratios, such as

the current and quick ratios, a problem with the total asset turnover ratio could also be

traced back to these ratios. Many business problems can be traced back to inventory but

certainly not all. The firm could be holding obsolete inventory and not selling

inventory fast enough. With regard to accounts receivable, the firm's collection period

could be too long and credit accounts may be on the books too long. Fixed assets, such as

plant and equipment, could be sitting idle instead of being used to their full capacity.

How to Improve Asset Turnover Ratio based on an article:

If a company analyzes that its asset turnover ratio is declining over time, there are several

ways in which the asset turnover ratio can be improved:

o Increase Revenue: The easiest way to improve asset turnover ratio is to focus on

increasing revenue.

o Liquidate Assets: Obsolete or unused assets should be liquidated quickly. Assets,

that are not used frequently, should be analyzed to see whether there is a sense in

retaining those.

o Improve Efficiency: The asset turnover ratio could be low because of inefficient

use of assets.

o Accelerate Accounts Receivables: Slow collection of accounts receivables will

lower the sales in the period, hence reducing the asset turnover ratio. The company

should focus on quick collection practices.

o Better Inventory Management: The company needs to check its inventory

management to figure out the time spent in the movement of the goods throughout

the process. If the company’s delivery system is slow, there will be delays in getting

the product to the customer and collecting the payment on time.

A company can increase a low asset turnover ratio by continuously using assets,

limiting purchases of inventory and increasing sales without purchasing new assets. The

higher the asset turnover ratio, the more efficient a company. Conversely, if a company

has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate

sales. A low asset turnover ratio will surely signify excess production, bad inventory

management or poor collection practices. Thus, it is very important to improve the asset

turnover ratio of a company.

DEBT RATIO
TIMES INTEREST EARNED

Having 0 times interest earned ratio is bad for a company. This really

brings a problem to the company. As you see, when a company has a lot of debt and no

interest payments are made will probably lead the company into bankruptcy. Bankruptcy

is not good for a firm’s background. In order to avoid this kind of situation, it is better

that the company should look for ways to settle the maturing obligations. One of which is

by increasing its total asset turnover ratio. Utilizing and financing well of firms asset can

be a great better off of decreasing risk. The company should generate more cash to be

able to meet interest obligations. Lower its debt ratio because the lower the percentage of

debt to total assets, the lower the risk the company may able to meet its maturing

obligations.

Therefore, decisions about the use of debt require firm’s to balance higher

expected returns against increased risk. A company must balance the possible reaction of

creditors, who are looking for healthy companies with high ratios, and shareholders, who

might grow concerned if a firm becomes too conservative with its earnings. Long term

creditors and stockholders are interested in a company’s long-run solvency, the

company’s ability to pay interest as it comes due and to repay the force value of debt

maturity.If a times interest earned ratio is deemed too high, the only way to effectively

lower it is to increase interest payment obligations and acquire more debt.

Generally speaking, higher ratios are a signal of financial health, effective

operations and solvency. There is a point, however, when a company can be too safe and

its lack of debt is considered undesirable to shareholders. This is because debt can be
used as leverage to expand and increase returns. Debt financing is relatively cheaper than

equity financing and, in some cases, an increase in the gearing ratio might actually add

value to the business.

Financial ratios can only be lowered by decreasing the value in the numerator or

by increasing the value in the denominator. A company could theoretically shrink its

revenue stream to reduce times interest earned, which is the numerator, but this does not

strengthen returns and increases the risk of insolvency without any real payout. Instead,

the company should look to strategically acquire additional debt, which is the

denominator, and grow its earnings potential.

When confronted with a very high interest cover, the company could issue more

bonds or look to take out a bank loan. This measure should not be done solely for the

purpose of lowering times interest earned. The debt should serve some viable and

productive business purpose.

Time interested earned ratio is very important from the creditors view point. A

high ratio ensures a periodical interest income for lenders. The companies with weak

ratio may have to face difficulties in raising funds for their operations. Generally, a ratio

of 2 or higher is considered adequate to protect the creditors’ interest in the firm. A ratio

of less than 1 means the company is likely to have problems in paying interest on its

borrowings. Since the twitter social media industry is not lower than 1 and results higher

than 2 the company is adequate to protect the creditors interest in the firm. A very high

times interest ratio may be the result of the fact that the company is unnecessarily careful

about its debts and is not taking full advantage of the debt facilities. In improving the
twitter time interested earned ratio No Dilution of Control: Issuing of debentures or

accepting bank loan does not dilute the control of the existing shareholders or the owners

of the company over their business. If the same fund is raised using equity finance, the

control of existing shareholders would dilute proportionately and also No Dilution in

Share of Profits: Opting for debentures over the equity as a source of finance keeps intact

the profit-sharing percentage of existing shareholders. Debenture holders or financial

institutions do not share profits of the company. They are liable to receive the agreed

amount of interest only. Therefore, profits are shared among the same number of hands

before and after the new project. The profit sharing percentage of individual shareholders

would reduce in case if the equity funds are availed. And a company would benefit of a

financial leverage Benefit of Financial Leverage: By involving debt in a profit making

company, the management can always maximize wealth of the shareholders. For

example, the internal rate of return of a company is 18% against a 12% rate of interest on

debt funds. The extra 6% which is earned out of the money of say debenture holders is

shared by the equity shareholders. Since the interest cost on the debt is fixed and

therefore the returns over and above the cost of interest spill over in the hands of

shareholders only. This is how financial leverage converts into wealth maximization. All

this is true under the condition that the rate of return on investment on debt funds is at

least greater than the percentage of interest. And thru this improvement a company is not

risky in borrowing money in the bank. But if you are lack with these and can’t control the

company you should avoid it so that your company will not Enlarge Leverage Ratios:

Debt financing raises the leverage of the business. High leverage means high risk of

bankruptcy. Bankruptcy is not the only risk but if the rate of return of the company
declines below the debenture interest rate at a later stage after issuing the debentures, it

can bring the whole project on a toss. The costs of projects may increase due to market

conditions but interest payment would not change to compensate such increase in costs.

Bankruptcy is the one misleading word to avoid in a company this is the starting line in to

a business losses and so on.

PROFIT MARGIN SALES

The profit margin ratio directly measures what percentage of sales is made up of

net income. In other words, it measures how much profits are produced at a certain level

of sales.

This ratio also indirectly measures how well a company manages its expenses

relative to its net sales. That is why companies strive to achieve higher ratios. They can

do this by either generating more revenues why keeping expenses constant or keep

revenues constant and lower expenses.

Since most of the time generating additional revenues is much more difficult than

cutting expenses, managers generally tend to reduce spending budgets to improve their

profit ratio.

Like most profitability ratios, this ratio is best used to compare like sized companies in

the same industry. This ratio is also effective for measuring past performance of a

company.

Based on the research:

Figure out your gross profit margin:

Make sure you know your up-to-date, overall gross profit margin.

Analyze your profit margins

Your overall gross profit margin could be deceiving. Find out the gross profit margin on

each of your products and services, and, in addition, analyse your gross margins over

different business divisions, product categories, suppliers or customer categories

according to your business.

Increase your prices

Yes, I know it can be difficult. But often we business owners are more worried than our

customers about price, and, let’s face it, our overheads are going up all the time.

Review all your prices

Do you charge all customers the same price? If so, why? You’ll invariably find that some

are less price sensitive than others, especially if they’re not paying for the bills

themselves, e.g. government or larger organizations.

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is

a profitability ratio that measures the amount of net income earned with each dollar of

sales generated by comparing the net income and net sales of a company. In other words,

the profit margin ratio shows what percentage of sales are left over after all expenses are

paid by the business.

Creditors and investors use this ratio to measure how effectively a company can

convert sales into net income. Investors want to make sure profits are high enough to

distribute dividends while creditors want to make sure the company has enough profits to

pay back its loans. In other words, outside users want to know that the company is

running efficiently. An extremely low profit margin formula would indicate the expenses

are too high and the management needs to budget and cut expenses.

The return on sales ratio is often used by internal management to set performance goals

for the future.

BASIC EARNING POWER

The basic earning power ratio (or BEP ratio) compares earnings apart from the

influence of taxes or financial leverage, to the assets of the company. It is just a ratio of

the earnings of the company and its assets and does not include the capital invested into

the company or the tax and interest liabilities. Always consider that the higher the Basic

earnings ratio, the more effective a company is at generating income from its assets and

that it can partake that the company is occupied and working good because of that

situation.

Considering the Basic earnings power ratio of Twitter which took result to a

lower ratio percentage from its industry average against Facebook really needs to be

answered because it can’t generate income from its asset. Therefore, the company should

deliberate ways into responding and countering those of the aspect that is affected in its

operation. Twitter should then possess higher earning ratio to have a good indication that

the company can operate or may be good and that it can apprehend basic profitability to

its asset.

Thus, Basic earning power ratio is used to analyze stocks to assess whether the

underlying company is worthy of investment and it play a vital rule in terms of knowing

the stability and profitability of its company. Knowing that Twitter’s September 30, 2015

result it should be that the company should then undertake answers and solution to make

it more higher than of its industry average percentage.

 It should also be noted that the higher the basic earning power ratio, the more

effective a company is at generating income from its assets. Using EBIT instead of

operating income means that the ratio considers all income earned by the company, not

just income from operating activity. This gives a more complete picture of how the

company makes money. Basic earnings power ratio is then very useful for comparing

firms with different tax situations and different degrees of financial leverage. Therefore,

this ratio should be examined and observed in conjunction with turnover ratios to help

pinpoint potential problems, glitches and difficulties regarding asset management and

also of the company’s status in terms of its process and level. Twitter must have a greater

ratio percentage of its Basic earning power than its industry average so that it will and

can allow accurate measure of company profitability.

RETURN ON ASSETS

The only reason your business owns assets is to produce income. You measure

your income in relation to your assets. This is called return on assets, or ROA. Assets like

equipment directly produce products that create income, whereas buildings contribute

indirectly to income, because they house income-producing equipment. You must

constantly find ways to reduce asset costs and increase income to keep your ROA as high

as possible.The assets of the company are comprised of both debt and equity. Both of

these types of financing are used to fund the operations of the company. The ROA figure

gives investors an idea of how effectively the company is converting the money it has to

invest into net income. The higher the ROA number, the better, because the company is

earning more money on less investment.

This may tend to be a good example upon understanding what is return of asset is

in a company. And primarily, as regards to Twitters low return of asset which is

considered to be a bad effect,the company should then consider those aspect which

triggers upon its slow and low return.

Total assets are used rather than net assets. Thus, for instance, the cash holdings

of a company have been borrowed and are thus balanced by a liability. Similarly, the

company's receivables are definitely an asset but are balanced by its payables, a liability.

For this reason, ROA is usually of less interest to shareholders than some other financial

ratios; stockholders are more interested in return on their input. But the inclusion of all
assets, whether derived from debt or equity, is of more interest to management which

wants to assess the use of all money put to work.ROA is used internally by companies to

track asset-use over time, to monitor the company's performance in light of industry

performance, and to look at different operations or divisions by comparing them one to

the other. For this to be accomplished effectively, however, accounting systems must be

in place to allocate assets accurately to different operations. ROA can signal both

effective use of assets as well as under-capitalization.

On the other hand, having a low return of asset just like Twitters result may tend

to improve by evaluating the benefits of investing in a new system versus expanding a

current operation. The best choice will ideally increase productivity and income as well

as reduce asset costs, resulting in an improved ROA ratio. The higher the Return of Asset

may result a better management. But this measure is best applied in comparing

companies with the same level of capitalization. Note that the more capital-intensive a

business is, the more difficult it will be to achieve a high ROA.

Return on assets is one of the financial ratios that would shows the percentage of

profit a company earns in relation to its overall resources. In a Facebook social media

industry the Return on assets has no problem at all the company has preform the related

assets without incurring a loss. The only reason your business owns assets is to produce

income. You measure your income in relation to your assets. On getting the most return

from the company is much important when cash flow is tight, most owners focus on

managing their current assets by cutting inventory and collecting money owed to them by
customers. However, the average business has as much or more capital tied up in non-

current assets – the property, plants, and equipment used to create the goods and services

to sell. If you are in a capital intensive business – like production, distribution, or

commercial real estate – how well you utilize your assets may be the difference between

profits and losses. If you have property, plant, and equipment assets that are sitting idle or

not generating enough cash flow, this may impact the value and financial health of your

business. If your cash flow and profits are not as strong as you would like, it may be

because you are not getting the most production possible from your fixed assets

In improving the return on asset a company should increase the revenue a

company must seek ways to increase revenues without increasing asset costs. For

example, if you sell a phone 20 percent more of a product but had to increase your asset

costs by 40 percent to buy the equipment to make the new product, you did not increase

your return on assets. Increase revenues through improved customer service or by

exploring market segments you have not sold to previously. But the company should also

reduce the asset cost why should a company reduce its asset cost to keep asset cost down

by monitoring your asset expenses monthly. For example, inventory counts as an asset

for your ROA calculations. Reduce inventory costs by managing the levels of inventory

to reflect your sales expectations. Excessive inventory can raise asset costs without

producing more income. You can reduce equipment costs by renting or leasing

equipment. This allows you to keep only equipment you need when you need it, instead

of buying a piece of equipment that may sit idle if your needs change. Practical steps can

also recommend a business to make the most return of business assets make investment
that improve utilization and productivity. A less capital intensive way to improve asset

utilization is to find ways to exchange extra capacity with other companies and take

advantage of idle assets by sharing offices, heavy equipment, or systems. Fixed overhead

costs tie up a lot of cash. Think about sharing resources before you add fixed costs or sell

off assets. Consider sharing offices, equipment, employees, and resources. If you look

around your industry or the local business community, you will likely find peer

businesses with idle or extra personnel, office space, warehouse space, inventory,

equipment, or spare systems capacity. Many seasonal businesses such as accounting,

retail, or landscaping have people, equipment, and real estate that may not be fully

utilized in the off season.

RETURN ON EQUITY

Return on equity or ROE refers to the profit a company earns compared with the

amount of shareholder’s equity is invested in the company. If the return on equity of the

company is averaged during for several years the results are good indicator that the

company operates well and how profitable the company is. Business really finds way to

continuously improve their return on equity to make their books look better. As discussed

in the analysis the higher the return on equity the profitable the company is. For the

company to improve its return on equity the company shall work hard and advertise more

to earn more profit.The profit must go higher to achieve a higher return on equity.

Facebook is the largest social network in the world. Facebook is also the most profitable.

Facebook Inc’s is trying to increase their return on equity they should focus on improving

and widening their sales. This means that the company needs to increase its sales at a rate

faster than its operating cost. Also having a high asset turnover can improve the return on

equity of a company. When the company turnover its asset in a year it is somewhat a sign

of operating efficiency. Increasing net margin and asset turnover have both a positive

impact on increasing the return on equity. Other way to improve more the company’s

return on equity is by financial leverage. Financial leverage refers to the amount of debt

that the company can manage. If Facebook Inc’s will improve its debt, then its return on

equity will improved and will increase. As financial leverage rises so does the return on

equity of the company. But increasing debt can also have a other effects of the company

such as the interest to be paid and the obligation to repay the debt, so increasing the debt

must be done with caution. Another way to increase the higher return on equity of the

business is to increase it sales as much as possible. This way is achieved by increasing

the prices and decreasing its costs. Since Facebook Inc’s is a service company it doesn’t

have an inventory. As you can see in the financial statements its cash and cash

equivalents decreases for this quarter but its property plant and equipment increases.

They use the cash to purchase some of the property plant and equipment. Short term

investments increases by each quarter. If the net income for the quarter will increase but

the stockholder’s equity will stay the same the result of return on equity will increase

higher. For Facebook Inc’s to increase its return on equity they have to increase its sales

for them to achieve the average return on equity of the business.

As we can see in the analysis, having a negative result of return on equity is not

really a good thing for the company. As well as suffering net losses for consecutive

quarters. Return on equity or ROE refers to the profit a company earns compared with the

amount of shareholder’s equity is invested in the company. If the return on equity of the

company is averaged during for several years the results are good indicator that the

company operates well and how profitable the company is. Business really finds way to

continuously improve their return on equity to make their books look better. As discussed

in the analysis the higher the return on equity the profitable the company is. For the

company to improve its return on equity the company shall work hard and advertise more

to earn more profit. The profit must go higher to achieve a higher return on equity.

Twitter is one of the famous social media in the world and it is hard to believe that this

company is suffering from net losses for consecutive years already. For the company to

have a positive and high result of the return on equity ratio the company shall focus more

on improving and widening their sales. Having also a high asset turnover can improve the
return on equity of the company. Increasing the net margin and the asset turnover can

have a both positive effect of the company’s return on equity. Another way to improve

the company’s return on equity is by financial leverage. Financial leverage refers to the

amount of debt that the company can manage. If Twitter will increase its debt then its

return on equity will improved and will increase. But increasing the debt of the company

has another effect also like paying the debts interest and the obligation to repay the debt

so increasing the debt must be done with caution. Also the Twitter must also focus and to

plan another way of having another source of income to cover up its losses for

consecutive quarters for the year. But the most effective way for Twitter to have a

positive and high result of return on equity ratio is to increase its sales as much as

possible. Since Twitter is a service company it doesn’t have inventory. Twitter must also

invest in long term investments to have another source of income. So for Twitter to invite

more costumers the company must focus on enhancing the features so that people will be

encourage in joining the Twitter world and can cause traffic in the social network site.

This might be the chance to improve the sales of the company and not to suffer from net

losses anymore. Twitter must also allow advertisements in the said site to earn more other

income.