What is their purpose? Can any ratio or combination of ratios predict a company's long-term viability? Can you think of an example whereby one ratio incorrectly looks "good" only because another ratio is "bad"?

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Nestor RutherfordLv2

28 Sep 2019

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Related questions

Assume XYZ Corp. had a current ratio of 12.5 You are the CFO of XYZ Corp. Would you argue the high current ratio is good or bad? Why?

Ratios provide us with the ability to quickly assess a particular item. We can quickly assess short-term liquidity by looking at a firm's current ratio. We can quickly assess a firms capital structure by looking at a firm's debt to equity ratio. So ratios provide excellent and quick information. That said, why would relying on one ratio likely lead to an inaccurate conclusion about a particular company?

You can make an inference from the ratios. By examining the trend in a company's ratios from, say 2011 to 2012, you can see how the company is doing.

Do your own ratio analysis for Kohl's. For example, you can calculate the current and quick ratios to find the state of a company's liquidity. How is the net working capital? Is it good news? How is inventory policy (research and use activity ratios)? How is the leverage? Collectively, what do you see as the big picture?

Share your conclusion about the two-year trend of the company you chose for your course project and the reasons why you came to that conclusion. You can list some ratios from the financial statements to back up your thinking. Make sure you are clear on which figures you are using from which year(s).

pucebeaver531

Steven has just won a significant amount of money from the state lottery. He has decided to use the funds to create an investment portfolio containing stocks from different industries. Steven has learned financial ratio analysis is a tool that he can use to help make his investment decisions. Some of the companies and ratios are:

South Regional CheapO Quality Heavy Duty

Electric Burger Software Machinery

Current Ratio 0.9 1.4 7.1 3.9

Quick Ratio 0.8 0.9 5.2 2.8

Debt Ratio 71% 50% 0% 36%

Net Profit Margin 6.5% 13.2% 26.9% 9.0%

What are the difficulties in comparing the ratios of these companies to one another?

Why are the liquidity ratios for the utility and fast food companies so much different from the software and machinery manufacturing company?

Would it be advisable for the software company to carry the same debt ratio as the utility company? Why or why not?

Make a recommendation to Steven regarding these investment choices. Based on these ratios, what is your advice? If another student makes different suggestions, challenge them to justify their choices.

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