Question

What are the answers to questions 13, 14, and 15 and how do I do them?

Below is are balance and income numbers for three companies. Answer the questions below. ​

		1		2		3
		Year 1	Year 2	Year 1	Year 2	Year 1	Year 2
Revenue		5674	5054	176896	124959	179083	186506
COGS		3442	3066	144924	102374	144249	150228
Gross Profit		2232	1988	31972	22585	34834	36277
EBITDA		1470	658	7962	2712	15990	20527
Taxes		510	218	6522	325	4309	11615
Net Income		960	440	1440	2387	11681	8912
Total Assets		5255	4681	275936	194921	244587	254725
Equity		3084	3235	13442	40922	89999	134333
Current Assets		3145	1550	62923	23413	91387	144135
Current Liabilities		873	289	53604	6438	85373	48307
Inventory		221	513	10271	2812	13799	81558
Long-Term Debt		1298	1156	208890	147560	69215	72084

• ● The balance sheet items may not balance perfectly (they may be out ~$1) due to rounding error.

• ● USE EXCEL to calculate the solutions and do the math – calculators may throw off your rounding

• ● Submit percentages as the percentage followed by two decimals. A number that appears as .04567 in excel should be

  submitted as 4.57%.

• ● Responses will be marked correct if they are within 5% of the answer I calculated in Excel

  (Questions on next page)

1. Which company has the best liquidity (highest current ratio) in Year 2?

2. Which company does the best job generating profits for shareholders in Year 2? (ROE)

3. Which company does the best job generating profits with its total investment in Year 2? (ROA)

4. Which company is the most leveraged (high long-term debt to equity) in Year 2?

5. Which company has the biggest current threat of being illiquid (lowest current ratio) in Year 2?

6. Which company saw the biggest increase in its net profit margin from Year 1 to Year 2 (or smallest decrease if NI all

   negative)?

7. What is company 2's ROA in Year 2?

8. What is company 1's ROA in Year 1?

9. What is company 3's ROA in Year 2?

10. Which company has the highest gross margin in Year 2?

11. What is company 1's quick ratio in Year 1?

12. What is company 2's current ratio in Year 2?

13. What is company 3's net margin in Year 2?

14. What is company 2's inventory turnover in Year 2?

15. What is company 3's long-term debt to assets ratio in Year 1?

Answer 1

It was mentioned that we had to show the answers only from 13 onwards .

13) Net margin in year 2 of company 3

Net margin =net profit/net sales *100 which shows the percentage of net profit the company had generated based on the total revenue.

The net sales=186506 , net profit=8912

So the net margin for year 2 =8912/186506*100=4.78% ie net profit is 4.78% of sales.

14)Company 2's inventory turnover ratio in year 2

Inventory turnover ratio measures the average number of times that inventory was sold during a year.Only finished goods inventory should be used in computing this ratio.

Inventory turnover ratio=Cost of goods sold/Average inventory

Cost of goods sold for year 2=102374

Average inventory=opening inventory+closing inventory/2

Average inventory=10271+2812/2=6541.5

So the inventory turnover ratio=102374/6541.5=15.65 times

Greater number of turnover on inventory indicates better inventory control and strong liquidity.

15)Company 3's Long term debt to asset ratio for year 1

Long term debt to total asset is the ratio that represents financial position of the compnay and the company's ability to meet all its financial requirements.

Long term debt of company 3 in year 1=69215

Total asset of company 3 in year 1=244587

So the long term debt to asse ratio=long term debt/total asset

long term debt to asset ratio=69215/244587 =.28

It shows the percentage of company's asset that are financed with loans and other financial obligation.