Financial Statement Analysis Solution

Fundamentals of Accounting

Introduction

Compare the ratios, and answer the following questions

Ratio

Year 1

Year 2

Current ratio

Quick ratio

Receivables turnover

9.7 times

10.2 times

Inventory turnover

2.4 times

2.3 times

Profit margin

11.4%

12.6%

Asset turnover

times

times

Return on assets

13.7%

15.4%

Return on equity

28.5%

29.3%

Price-earnings ratio

10.4 times

12.4 times

Debt ratio

50.2%

45.3%

Times interest earned

9.6 times

13.0 times

What does the calculation of each ratio represent?

How does year one compare with year two, and what trend can be seen when you compare the two years?

Is the trend from year one to year two positive or negative?

What are the possible...