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Selected information for two companies competing in the catering industry is presented in the table below:...

Selected information for two companies competing in the catering industry is presented in the table below: Account Name Lawson Dawson Current assets $110500 $167900 Non-current assets $250000 $299000 Current Liabilities $58600 $23500 Non-current Liabilities $89700 $145000 Equity $212200 $298400 Profit $75000 $53000 Required: A. Calculate the following ratios for Lawson and Dawson: i. Current ratio. ii. Return on Assets (ROA). ) iii. Return on Equity (ROE).) B. From your calculations in part (A), explain which entity is in a more favourable position. C. Discuss two limitations of ratio analysis as a fundamental analysis tool.

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Workings Lawson Dawson Note
Current assets      110,500.00 167,900.00 A
Non-current assets      250,000.00 299,000.00 B
Total assets      360,500.00 466,900.00 C=A+B
Current liabilities        58,600.00      23,500.00 D
Non Current liabilities        89,700.00 145,000.00 E
Equity      212,200.00 298,400.00 F
Profit        75,000.00      53,000.00 G
Answer a
Current ratio 1.89 7.14 H=A/D
Return on Assets 20.80% 11.35% I=G/C
Return on Equity 35.34% 17.76% J=G/F
Answer b
Lawson is in more favorable position because all of the ratios are higher and better.
Answer c
They do not necessarily represent future of the company. They are the summary of the present performance of the company. Future may or may not be good.
It does not take into account inflationary effects. Ratios are based on nominal terms and does not account real money.

ekkarill92 answered 2 years ago
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