The following information is a selected financial ratio for Company A and Company B. Ratio Company A Company B Return on assets 0.15 0.08 Debt ratio 0.50 0.65 Net profit margin 0.10 0.05 Turn over accounts receivable 12.00 11.50 Turnover of non-current assets 4.50 3.50 Return on common equity 0.30 0,10 Current ratio 1.10 1.00 Dizzy changing inventory 4.55 20.00 Long-term debt ratio to 0.20 1.50 equity Gross profit margin 0.50 0.45 Acid test ratio 0.60 0.55 Dizzy changing assets 1.10 0.90 Prepare a comparative analysis to determine which company achieves a better position in the following aspects: 10 short term liquidity (0) capital structure and solvency (ii) use of assets (iv). luck
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Short-term liquidity: To determine which company has better short-term liquidity, we can look at the current ratio and the acid test ratio. The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets, while the Show more…
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Using the financial statements for GMT Enterprises for 2010 (given below), calculate the return on equity, the debt ratio, and the times interest earned ratio. b. Suppose the industry average debt ratio is 50%. Give one reason why the debt ratio for GMT Enterprises may be considered favorable, and give one reason why the debt ratio for GMT Enterprises may be considered unfavorable. GMT Enterprises 2010 Financial Statements Income Statement ($) Sales 10,000 Operating expenses 8,200 EBIT 1,800 Interest expense 100 EBT 1,700 Taxes (40%) 680 Net income 1,020 Balance Sheet ($) Current assets 1,500 Fixed assets 4,000 Total assets 5,500 Accounts payable 900 Accruals 600 Long-term debt 400 Common stock 2,100 Retained earnings 1,500 Total liabilities & equity 5,500
Aarya B.
Liquidity ratios are used to measure a firm's ability to meet its obligations as they come due. Two of the most commonly used liquidity ratios are the: (1) Current ratio and (2) Quick, or acid test, ratio. The current ratio is the most commonly used measure of solvency. Its equation is: If a firm is having financial difficulty, it typically begins to pay its accounts payable more slowly and to borrow from the bank—both of which will increase its current liabilities, causing a decline in the current ratio. The quick ratio is a measure of a firm's ability to pay off obligations without relying on the sale of inventory, which are typically the least liquid of a firm's current assets. Its equation is:
Mauya M.
22. Selected financial ratios. The following information pertains to Wamser Company: Cash: $40,000 Accounts receivable: $100,000 Inventory: $80,000 Plant assets (net): $380,000 Total assets: $600,000 Accounts payable: $85,000 Accrued taxes and expenses payable: $25,000 Long-term debt: $50,000 Common stock ($10 par): $160,000 Paid-in capital in excess of par: $80,000 Retained earnings: $200,000 Total equities: $600,000 Net sales (all on credit): $800,000 Cost of goods sold: $600,000 Net income: $72,000 Instructions: Compute the following: (It is not necessary to use averages for any balance sheet figures involved.) a) Current ratio b) Inventory turnover c) Accounts receivable turnover d) Book value per share e) Earnings per share f) Debt to assets g) Profit margin on sales h) Return on common stockholders' equity
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