Practice of Ratio Analysis, Interpretation.docx - Practice of Ratio Analysis Interpretation and Recommendations Presented below are selected ratios for

Practice of Ratio Analysis, Interpretation.docx - Practice...

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Practice of Ratio Analysis Interpretation and Recommendations Question # 1: Presented below are selected ratios for three years ending December 31 st for company Alpha Ltd. Ratios Year1 (in %) Year2 (in %) Year3 (in %) Current ratio 200 500 150 Acid test ratio 110 320 80 Debt equity ratio 15 40 55 Operating expense ratio 24 25 32 Number of times interest earned 6 6 -1 Stock turnover 12 10 6 Rate of return on total assets 15 10 5 Required: Outline the possible explanations for the drastic changes in some of the ratios from year1 to 2 and from year 2 to 3.
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Question # 2: The standard ratios for the industry and the ratios of company X are given. Industry Standards Company X Current Ratio 2.4 2.67 Debtors turnover ratio 8.0 10.0 Stock turnover ratio 9.80 3.33 Assets turnover ratio 2.00 1.43 Net profit ratio 3.3% 2.1% Net profit to total assets ratio 6.6% 3.0% Net profit to net worth 10.7% 4.8% Total debts to total assets 63.5% 37.7% Required: Indicate the strength and weaknesses of company X, also suggest the areas in which improvements can be made and how? Question # 3: Mr. Parks has asked you to advise him on the long-term debt-paying
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  • Fall '19
  • Financial Ratio, Arodex Company, Mr. Parks

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