Combination Of Cross-Sectional And Time Series

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Business finance

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Table of Contents
Introduction................................................................................................................................3
Types of ratios............................................................................................................................3
Cross-sectional analysis.........................................................................................................3
Time series analysis...............................................................................................................3
Combination of cross-sectional and time series.....................................................................3
Ratios analysis............................................................................................................................3
Liquidity ratios.......................................................................................................................4
Debt management ratios.........................................................................................................4
Profitability ratios...................................................................................................................5
Asset management ratios........................................................................................................5
Market value...........................................................................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................8

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Introduction
The ratio is the technique that is used in the business by which the proper analysis is made for
the evaluation of the position of the company and performance which is maintained. This will
be performed with the help of the information which is available in the financial statements
and they will be required to be collected in an appropriate manner. There are various forms of
analysis which include cross-sectional and time series analysis and the discussion about them
will be provided in the report.
Types of ratios
The ratio analysis is performed in various ways and they are described below with the proper
calculations to create the proper understanding.
Cross-sectional analysis
This is the type of analysis in which there will be a comparison of ratios among various
entities (Innocent et al., 2013). In this, the performance of one company will be compared
with its competitor to analyze the position in the market.
Time series analysis
Under this method, the calculation is made for the single company for a time period and the
trend which is involved is identified to ascertain the changes in performance and position of
the business.
Combination of cross-sectional and time series
This approach is used when the different companies are compared with each other over a
time duration. In this, the changes across time are considered and used for decision-making
purposes.
Ratios analysis
The calculations which are made for both the companies which include L'Oreal and Estee
lauder in relation to the time period of three years are represented below.

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Liquidity ratios
Liquidity
ratio:
L’Oreal
company
Estee lauder
Particulars Formula 201
6
201
7
201
8
201
6
201
7
201
8
Current ratio Current assets/current liabilities 1.0
9
1.2
0
1.2
3
1.5
8
1.7
6
1.8
6
Quick ratio Current assets – Inventories / Current
liabilities
0.8
0
0.9
3
0.9
5
1.1
0
1.2
3
1.3
7
The current and quick ratio helps in determining the liquidity position of the company. There
are various liabilities that are required to be met in the coming period and that ability of the
business is analyzed in this section (Babalola & Abiola, 2013). It can be noted that both ratios
are increasing with time. The current ratio reached from 1.09 to 1.23 and the quick ratio
raised from 0.80 to 0.95 in the case of L'Oreal. This shows the company is performing well
and will be maintaining its liquidity. If L'Oreal and Estee lauder is compared then the
performance of Estee lauder is better as there are higher ratios in this company which makes
it stronger in the market and improvement is required to be made in L'Oreal (Estee lauder,
2017).
Debt management ratios
Debt management ratios L’Oreal company Estee lauder
Particulars Formula 2016 2017 2018 2016 2017 2018
Total debt to
assets
liabilities / assets 0.31 0.30 0.30 0.61 0.62 0.63
Time interest
earned
EBIT / interest 144.7
0
123.9
4
138.7
2
21.9
0
15.7
0
16.0
3
Cash coverage
ratio
EBIT + depreciation /
interest
152.2
0
128.7
2
144.3
4
27.7
5
20.2
0
19.4
0
In the business, there are various debts that are involved and they are required to be managed
in an adequate manner. There is a decline in debt to asset ratio from 0.31 to 0.30 and this is
beneficial as interest expense will be reduced. There is proper cash coverage and interest
earned ratio which is managed and it is good for the company. In comparison to L'Oreal the
other company is weak in managing its debts and is also having higher debts which will
create trouble for the company in the coming period (Estee lauder, 2018).