Comparing key ratios
Key ratios are an efficient tool to compare firms over the same platform irrespective of their scale and size. Broadcom (BRCM) has an exposure of 55% to the PowerShares QQQ (QQQ). It has the largest market capital of $31.05 billion. It’s followed by Skyworks (SWKS), Altera (ALTR), and Freescale (FSL). Their market capital is $17.04 billion, $14.92 billion, and $12.12 billion, respectively.
The above chart shows the key ratios of companies that belong to the semiconductor industry. We’ve considered 2Q15 statistics to draw the analysis.
The current ratio measures the firm’s liquidity in order to meet short-term obligations for their day-to-day activities. When the ratio is higher, it can better manage the day-to-day operations. Skyworks has the highest ratio of 5.70. It’s followed by Altera, Broadcom, and Freescale. They’re at 4.56, 3.14, and 2.56, respectively.
The profit to sales remains high for Skyworks at 0.25. It’s followed by Broadcom, Altera, and Freescale at 0.18, 0.16, and 0.10, respectively. The profit to sales is being used to compare what percentage of the profit accounted for sales over a period. The higher the ratio, the better it is.
ROCE (return on capital employed) doesn’t take into account the firm’s capital structure. It’s mainly being used to compare the operational efficiency of a firm based on its EBIT (earnings before interest and tax) figure. The higher ratio indicates that the firm had been efficient to grow investors’ money. The ROCE remains high for Freescale at 0.11. It’s followed by Skyworks, Broadcom, and Altera at 0.08, 0.03, and 0.01, respectively.
The asset turnover ratio measures a firm’s ability to generate revenue by using their assets more efficiently. The turnover ratio remains high for Freescale at 1.46. It’s followed by Skyworks, Broadcom, and Altera. They’re 0.49, 0.26, and 0.14, respectively.
The equity multiplier measures the number of a firm’s assets that are financed by its shareholders. A higher ratio indicates that the firm is leveraging debt over equity for their financing activities. Skyworks remains debt-free for 2Q15 at 1.15. For the current quarter, Freescale reported that its long-term debt is more than its total assets that have pulled the bar down to -0.99.