Determining a company’s financial health is a very important step in making a decision whether or not to invest or to stay invested. There are many different ways to compute a company’s financial health. In this test, I will be taking into consideration Emerson Electric Company’s (EMR) profitability, debt and capital, and operating efficiency. Based on this criteria, we get to see sales, returns, margins, liabilities, assets, returns and turnovers.
Profitability
Profitability is a class of financial metrics that are used to assess a business’ ability to generate earnings as compared with expenses and other relevant costs incurred during a specific period of time.
In this section we will look at four tests of profitability. They are: Net Income, Operating Cash Flow, Return on Assets and Quality of Earnings. From these four metrics, we will establish if the company is making money and gauge the quality of the reported profits.
- Net Income 2011 = $2.480 billion
To pass, the company needs to have a positive net income. Emerson Electric passes.
- Operating Cash Flow 2011 = $3.631 billion
Operating Cash Flow is the cash generated from the operations of a company, generally defined as revenue less all operating expenses, but calculated through a series of adjustments to net income.
To pass, the company needs to have a positive operating cash flow. Emerson Electric passes.
To read more: Emerson Electric: Inside The Numbers
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