Financial Performance and Ratio Analysis of Eaton Corporation, Essay Example

As we can see from the financials of the organization selected ‘EATON Corporation’ for the year 2014, the company is performing well overall. The ratio analysis are divided into Liquidity ratios, Profitability and the Solvency ratios. When looking at the liquidity position of the company, the current ratio of the company in 2014 is 1.602 which shows that the company is highly liquid and in case of financial solvency the company has the potential to pay off its creditors. When we look at the efficiency of the operations of the company, we can see that the Account receivables turnover in days is 55.6 which indicates that the company takes time to collect cash from the customers. This is a bit of problem for the company and it needs to be minimized to 30 days for better efficiency of the operations. Inventory turnover on the other hand also is a bit problem as it is 6.620 which means that the company retains its inventory for a longer period. It also needs to be minimized. In short, the liquidity position of Eaton Corporation is sound and the creditors will have less risk investing in this company.

Talking about the profitability of the company the company is profitable as the year 2014 is a good financial year for the company with Net profit of $ 1.350 billion. The net profit margin is 8.04 % which shows a positive financial position of the company. The return on equity is pretty good with around 18.02 % which indicates that the company gives good returns to its shareholders. The return on assets also is good which stood at 7%. So, Eaton Corporation is robust and the shareholders are satisfied with the performance of the company. In regards to solvency of the company we can see that the times interest ratio is 13.389 and the debt to assets is around 50.8%. This indicates that the company’s capital structure is balanced with a mix of both debt and equity. The ideal capital structure if 60:40 which means 60% debt and 40% equity. So, Eaton Company lies in the ideal capital structure.  All these ratio indicates a positive and robust financial position of the company. The investors interested in Eaton Corporation are shareholders, creditors, suppliers, debtors, banks and financial institutions.

The corporation’s success is due to the sectors of the business in which currently operates. These are divided into 5 various segments like Aerospace, Electrical, Automotive, Truck and Hydraulics. The company is profitable because of the effective business structure. The enterprises integrated systems brings the various corporations strength into the company giving it a comparative advantage over the other firms. The company is continuously involved in the enhancement of its operations and performance. Eaton plays a defensive role in regards to the market. The success of the company lies in innovative business strategies implemented by the CEO which shows that the company has been performing well in contrast to previous years. The horizontal and trend analysis shows that the company’s financial performance is significantly improving in contrast to previous years. The company employees 60,000 people globally and has the potential to achieve a higher profitability and growth. The company financials are its strong points and the company can use it to expand internationally.

References

Ecampus.phoenix.edu. (2015). Updating Sitemap Cookie. Retrieved 16 April 2015, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/index.html#1

Eaton Plc. (2015). Eaton Corp Plc (ETN:New York): Financial Statements Businessweek.Businessweek.com. Retrieved 16 April 2015, from