Read the scenario and answer the questions that follow. Barry McGuire wants to p
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Read the scenario and answer the questions that follow. Barry McGuire wants to purchase a dry-cleaning establishment and has all of its financial statements. Give a specific ratio that he can calculate to answer the following two questions: Can the company pay its short-term bills? Is the company profitable? Read the scenario and answer the questions that follow. Barry McGuire wants to purchase a dry-cleaning establishment and has all of its financial statements. Give a specific ratio that he can calculate to answer the following two questions: Can the company pay its short-term bills? Is the company profitable? Read the scenario and answer the questions that follow. Barry McGuire wants to purchase a dry-cleaning establishment and has all of its financial statements. Give a specific ratio that he can calculate to answer the following two questions: Can the company pay its short-term bills? Is the company profitable?Explanation / Answer
Whether a firm/Company can pay its short term bills (current liabilities) or not, can be determined by calculating Liquid ratio.
Liquid ratio = Liquid assets/Current liabilities
Liquid assets are those assets which can be converted into cash without loss of time and value. Hence, if a firm has sufficient liquid assets, it can pay off its short term bills on time.
Profitability of a business can be judged by calculating Net profit margin. Higher the net profit margin, better it is.
Net profit margin = Net profit/Sales
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