" At the Colorado Group, the return on investment amounted to 20.4% in 2006 and 21.5% in 2005. The small decrease from 2005 to 2006 can be explained by the fact that that the net profits decreased significantly during this period of time and that the decrease of the total assets value was by no means similar in value.
The gross profit margin is calculated by dividing the net sales minus the cost of goods sold by the net sales value and shows the "profitability of a company's sales after the cost of sales has been deducted." In this case, in 2006 this ratio was equal to 54.4%, as compared to 55.9% in 2005. As we can see, the value slightly declined, but this is not necessarily something that would point out towards the fact that the company is less profitable.
III. Overall Analysis
Following the calculation, evaluation and analysis of different financial ratios, we are able to draw conclusions both on the financial situation at the company, including the main characteristics of its sources of finance, and on its profitability and operational characteristics over the 2005-2006 period.
First of all, we should point out towards the fact that the Colorado Group uses almost exclusively stock as the source of finance. We have seen that the debt and debt to equity ratios have very small values and that they practically show the company almost doesn't use credit or interest-based instruments for financing. The financial leverage is very low. A stock - based financing scheme provides several advantages, such as the fact that debt - related costs, including interest, do not exist in this case. On the other hand, all stockholders will probably have a say in the way the company is run and dividends will have to be paid out at the end of each year.
Second of all, still in the financial sector, 2005 and 2006 have consolidated the belief that the company follows a very prudent policy in its financial liabilities. The previous paragraph, related to debt, showed this, but we should also mention the fact that the current ratio and the quick test were very conservative in value, with values around 2.5 and even higher. This shows the adversity of the Group's management towards contracting liabilities that cannot be immediately paid out of the company's current assets.
Third of all, the company...
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