23. Which of the following statements is correct? a. A major disadvantage of a r
ID: 2615079 • Letter: 2
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23. Which of the following statements is correct? a. A major disadvantage of a regular partnership or a corporation as a form of business is the fact that th ey do not offer their owners limited liability, whereas proprietorships do ny businesses is the fact that the corporate tax rate always prietorships and partnerships are taxed b. An advantage of the corporate form for ma exceeds the personal tax rate, which is the rate at which pro here are more partnerships and sole proprietorships than co corporations produce more goods and services than do other forms of busi c. T tions in the U.S., but ness. Because corporations enjoy the benefits of limited liability, interest, unlimited life, and favorable tax status relative to the situation for proprietorships, most large businesses choose to incorporate. easy transferability of ownership ips and pa word processors for drawing the necessary papers), it is less expensive to form a corporation than to form a propriup partnership e. Because lawyers have the incorporation process so automated (e.g., word p or answer 4. Compare and critique the following financial ratios for a company with the industry ratios. Your Industry 1.70x should be one or two sentences each for the ratios. Company 1.25x Quick ratio 3-55X 2.90x Fixed assets turnover 57.00% Debt ratio 50.5% 1.00x 5.00x Price to EarningsExplanation / Answer
23. The answer is statement “c”. USA has more number of sole proprietorship entities and partnership entities than corporations. But despite the lower number of corporations the total value of goods and services produced by corporations far exceed the quantum of goods and services produced and offered by sole proprietorship entities and partnership entities. This is because the scale and size of corporations are much higher when compared to scale and size of sole proprietorship entities and partnership entities not only in USA but across the world.
24 (a) Quick ratio = (current assets – inventories)/current liabilities. Here quick ratio of the company is lower than the industry average. This means that the company has less liquidity than the industry and this does not augur well for the company.
(b) Fixed assets turnover = Net sales/Average net fixed assets. This ratio indicates the efficiency with which assets are employed and a higher ratio translates into a higher degree of efficiency. Here the ratio of the company is lower than the industry and this means that the company is less efficient (than the industry) when it comes to employing its fixed assets.
(c) Debt ratio = Total liabilities/Total assets. Debt ratio of industry is higher than the company and this means that the company has a lower level of financial leverage than the industry and hence has a higher ability to pay off its debt in the future.
(d) Price to earnings (P/E) = Price per share/earnings per share. P/E ratio of the company is much higher than the industry ratio and this indicates that investors are considering the company’s stock at premium as they think that the company has high and better growth prospects than the industry.
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