Question

What are the answers to questions 5, 6, 7, and 8 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

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

Current ratio= Current Assets / Current Liabilities

Year 2.

Company 1= 1550/289 = 5.36 times

Company 2= 23413/6438 = 3.64 times

Company 3= 144135/48307 = 2.98 times

Comapny 3 has lowest current ratio in year 2, so Company 3 has the biggest current threat of being illiquid in yer 2.

Q.6: Which company saw the biggest increase in its net profit margin from Year 1 to Year 2?

Net profit margin= (Net Income / Revenue)*100%

	Company 1	Company 2	Company 3
Year 1	=960/5674	=1440/176896	=11681/179083
Year 2	=440/5054	=2387/124959	=8912/186506

	Company 1	Company 2	Company 3
Year 1	16.92%	0.81%	6.52%
Year 2	8.71%	1.91%	4.78%

Therefore, from the above, it is clear that Company 2 saw the biggest increase in its net profit margin from Year 1 to Year 2.

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

ROA= Net Income / Total Assets

= 2387/194921

= 1.22%

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

ROA= Net Income / Total Assets

= 960/5255

= 18.27%

C