Ricardo Rocks (RR) is a public listed manufacturing company and we can calculate financial ratios from...

Ricardo Rocks (RR) is a public listed manufacturing company and we can calculate financial ratios from its financial statements.

What financial ratio(s) would you analyze and why, if you are:

A supplier that requires payment of amount due in 2 weeks and looking to extend

credits to RR
A new investor interested to invest in RR
A banker looking to extend a long-term loan to finance RR for a new investment

project.

Please provide a clear explaination

Solutions

Expert Solution

1. If I am a supplier that is required payment of amount in two weeks and looking to extend credit.

A. I will be looking for quick ratio in order to determine the liquidity.

B.I will also be looking for current ratio in order to determine the total current assets and current liabilities.

C. I will also be looking for the interest coverage ratio.

2. If I am potential investor then-

A. I would be looking for the cash flow ratio of the company like free cash flows to the firm

B. I will be looking for Earning to EBITDA ratio

C.I will be looking for price to earning ratio in order to find the share is currently overvalued undervalued

D.I will also be looking for the solvency ratios if I am investing for the longer period of time in their stocks

3. If I am a banker who is looking to extend credit then-

A. I would be looking for the interest coverage ratio of the company

B.l would be looking for the debt equity ratio of the company in order to find out the solvency of the company

C. I will also be looking to find out free cash flow generating capacity of firm.

D. I will also be finding out the liquidity ratios of the company.

jeff jeffy answered 1 year ago

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