Financial analysis Assignment Example | Topics and Well Written Essays - 500 words

Financial analysis - Assignment Example The steel company will have the lowest because steel production is very asset intensive, meaning the company will have to invest billions in equipment, plants, and property required for steel manufacturing. Additionally, equipment used will have a long lifetime. As a result of this high investment and its long lifetime, the sales for a steel company will be relatively low, leading to low asset turnover (Rodgers 23). While supermarkets have low sales margins, pharmaceutical companies, jewelry retailers, and software companies have high sales margins. Supermarkets have low sales margins because of the high intensity of competition in the sector. In addition, there is minimal product differentiation because they mainly carry similar brands. Consumers also have a high sensitivity to price changes and switch costs tend to be low. As a result, competition in the sector is mainly based on pricing, which results in extremely low margins (Rodgers 48). On the other hand, software companies have the highest sales margins because consumer-switching costs are high, while production costs tend to be relatively low. Finally, most costs for initial development of software are previously expensed. Thus, the sales margins are higher than for the rest. I disagree with James Broker’s assessment. While earning numbers and operating cash flow are essential in the evaluation of a company’s prospects, they will differ because of long and short-term accruals. Some current accruals like credit sales lead to higher earnings than operating cash flows. On the other hand, other current accruals like unpaid expenses result in lower earnings than operating cash-flows. Non-current accruals like deferred taxes and depreciation also result in differences between operating cash-flows and earnings. Understanding the difference between earnings and operating cash-flows, in this case, is more important than the fact that earnings are higher than