1.What does the calculation of each ratio represent? 2.How does year one compare
ID: 2447625 • Letter: 1
Question
1.What does the calculation of each ratio represent? 2.How does year one compare with year two, and what trend can be seen when you compare the two years? 3.Is the trend from year one to year two positive or negative? 4.What are the possible reasons for the trend? 5.What recommendations do you have for turning a negative trend to a positive trend?
Ratio
Year 1
Year 2
Current ratio
3.12:1
2.96:1
Quick ratio
1.34:1
1.02:1
Receivables turnover
9.7 times
10.2 times
Inventory turnover
2.4 times
2.3 times
Profit margin
11.4%
12.6%
Asset turnover
1.21 times
1.22 times
Return on assets
13.7%
15.4%
Return on equity
28.5%
29.3%
Price-earnings ratio
10.4 times
12.4 times
Debt ratio
50.2%
45.3%
Times interest earned
9.6 times
13.0 times
Ratio
Year 1
Year 2
Current ratio
3.12:1
2.96:1
Quick ratio
1.34:1
1.02:1
Receivables turnover
9.7 times
10.2 times
Inventory turnover
2.4 times
2.3 times
Profit margin
11.4%
12.6%
Asset turnover
1.21 times
1.22 times
Return on assets
13.7%
15.4%
Return on equity
28.5%
29.3%
Price-earnings ratio
10.4 times
12.4 times
Debt ratio
50.2%
45.3%
Times interest earned
9.6 times
13.0 times
Explanation / Answer
Ans
Ans 2
Ans 4
Ans 5
Ans 1 Ratio Year 1 Year 2 Current ratio 3.12:1 2.96:1 Liquidity Quick ratio 1.34:1 1.02:1 Liquidity with more emphasis on liquid assets excluding inventory. Receivables turnover 9.7 times 10.2 times Collection efficiency Inventory turnover 2.4 times 2.3 times Inventory Management Profit margin 11.40% 12.60% Profitability Asset turnover 1.21 times 1.22 times Revenue generating capcity of assets employed. Return on assets 13.70% 15.40% Efficiency of capital empoyed Return on equity 28.50% 29.30% Efficiency of owners capital employed. Price-earnings ratio 10.4 times 12.4 times 1. Pay back period of stock, future earning capcity. Debt ratio 50.20% 45.30% Solvency and fincancial leverage. Times interest earned 9.6 times 13.0 times Solvency.Related Questions
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