If you had $100,000 to invest in a sport-related organization (e.g., Nike), what financial ratios would...

If you had $100,000 to invest in a sport-related organization (e.g., Nike), what financial ratios would be most important to your decision? Why? Be sure to support your responses with sound financial principles.

Expert Solution

I would be looking for following ratios-

A. Current ratio and quick ratio- current ratio and quick ratios are reflective of the liquidity of the company and they are providing us the debt repayment ability of the company and cash receiving ability of the company in the short-run and quick ratio will also help in telling us about the marketable securities and cash and cash equivalents position of the company so it will provide us with an idea what the liquidity of the company in the short run.

B. Debt equity ratio- I will be ensuring that the company is having no solvency risk in the long run and it can easily operate in the long run by looking at the debt equity ratio and digitalization of proper debt in the overall capital structure of the company.

C. Asset turnover ratio- I will also be looking at the efficiency of the company in management of its assets by looking at the Asset turnover ratio which will be reflecting the total turnover generated out of the total assets the company is having, and it will reflect the efficiency and effectiveness of the use of the assets in generation of sales.

D. Net operating margin and net profit margin- I will be looking at net operating margin and net profit margin which will be reflective of the profitability of the company and they are the part of the profitability ratios and you will be trying to reflect that the ability of the company to make profit on the operational front or the non-operational front.

E. Times interest earned- Times interest earned ratio will be reflecting the ability of the company to deal with short term repayment of the debt capital by comparing it with its earnings so it will be providing us with the reflection of the ability of the company to deal with the short term repayment and not have a lag on the liquidity of the company.

jeff jeffy answered 1 year ago

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