Given the following comparisons between the ratios for Marion\'s Hardware and th

Question

Given the following comparisons between the ratios for Marion's Hardware and
those for the typical firm in the industry (measured by the industry median), which of
the following statements is false? Marion's Hardware Industry Median Current ratio
1.96:1 1.84:1 Debt to net worth 2.48:1 1.75:1 Average inventory turnover ratio 2.20
per year 4.7 per year Net profit on equity ratio 19.72% 11.38%

a. Marion's Hardware should have no trouble paying its short-term debt; the company's
liquidity appears to be sound.
b. Inventory is moving through Marion's Hardware slowly compared to the industry
average. The owner should find out what is causing this problem before it threatens the business.
c. Because Marion's Hardware is not overburdened with debt, the company would find
it very easy to borrow money, especially from traditional loan sources such as banks.
d. Marion's Hardware appears to suffer from undercapitalization; that is, the owners
have not invested enough of their own money in the company and must rely on
creditors for financing.

Explanation / Answer

c. Because Marion's Hardware is not overburdened with debt, the company would find it very easy to borrow money, especially from traditional loan sources such as banks.

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