Good Example Of Priceline Vs Expedia Company Critical Thinking

Introduction

The modern business world has become very competitive and investors are keen on investing on those companies that are profitable with a growth potential. Various financial accountings reports indicate that many investors have incurred huge losses in the recent past due to failure to analyze the financial statements of the companies in which they invested.
The best way to analyze the financial statement of listed entity in the stock exchange market such Canadian TSX or the US S&P 500 entity is to use financial ratios. Financial ratios have an industry average of which if the company is below the industry average then it is not worth investing. For instance, the most common ratios sued in the financial analysis include earnings per share, debt ratios, asset turnover, return on assets, operating margin, cash flow, operating expenses ratios and the current ratios among others. Investors are required to have pure knowledge on each financial ratio to help them determine whether a company will be able to yield returns that will cover their investment. When using earnings per share, a reduction in earnings indicate that, the company’s overall profitability is declining. A debt ratio more than 50%, which is the industry average, means that the company is not credit worth. Low than 1 current and acid test ratios indicate that the company is not in a position to meet its short term debt. The gross profit, earnings per share and the gross margin should be more than 50% if a company is profitable.
When comparing the financial statements of Priceline and Expedia Company, it is worth noting that we shall invest in Priceline Company for various reasons that are discussed later in this report analysis. Based on the analysis of the financial ratios of the two companies, Priceline remains to be the best option for investment and aim of this report is to discuss those reasons in-depth.