Question

The following ratios are for four companies in different industries. Some of these ratios have been discussed in the textbook, others have not, but their names explain how the ratio was computed. These data are for the companies’ 2016 fiscal years. The four sets of ratios, presented randomly are: Ratio Company 1 Company 2 Company 3 Company 4 Current assets ÷ Total assets 7% 18% 31% 19% Average days to sell inventory 72 days 12 days 163 days 108 days Average days to collect receivables 60 days 3 days 47 days 9 days Return-on-assets 7% 8% 3% 5% Gross margin 39% 22% 22% 50% Sales ÷ Property, plant, and equipment 1.1 times 3.4 times 4.5 times 23.5 times Sales ÷ Number of full-time employees $279,98 0 $46,350 $397,743 $64,71 7 The four companies to which these ratios relate, listed in alphabetical order, are:  Wayward Brewing Company is a company that produces beer and related products.  Darden Restaurants, Inc. operates approximately 2,150 restaurants under 10 different names, including Olive Garden, Bahama Breeze, and LongHorn Steakhouse.  Liebherr Group is a large equipment manufacturer that manufactures heavy construction equipment.  Weight Watchers International, Inc. is a company that provides weight loss services and products. Its fiscal year-end was December 31, 2016, during which 81 percent of its revenues came from services and 19 percent from product sales. Required: 1. Determine which company should be matched with each set of ratios. 2. Write a memorandum explaining the rationale for your decisions

Answer 1

Going with the principle an ant must be compared to an ant and not elephant.

1. The ratios usually calculated for Wayward Brewing & Leibherr Group are

Current Assets/ Total Assets

Average days to sell Inventory

Average days to collect receivables

Return on assets

Gross Margin

Sales / Property,Plant & Equipment

2. The ratios usually calculated for Darden Restaurant & Weight watchers International

Gross Margin

Return on Assets

Sale/ Number of Full time employees

Average days to sell inventory ( For Darden Restaurant)

Average days to collect receivables ( For Darden Restaurant)

The first two industries are manfacturing and the latter two are Service industries.

Darden Restaurant is a service provider and consists of stock in trade usually ment for selling.

Weight Watchers International is a weight loos service provider usually they do not have more inventory.

Wayward Brewing & Leibherr Group are manfacturing industries whose investment will be usually high and thier current assets will be more.