Ratios

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550 words

 

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Locate a publicly traded U.S. company of your choice. Then, calculate the following ratios for the company for 2012 and 2013:

  • Liquidity Ratios
    • Current ratio [current assets / current liabilities]
    • Quick ratio [(current assets – inventory) / current liabilities]
  • Asset Turnover Ratios
    • Collection period [accounts receivable / average daily sales]
    • Inventory turnover [cost of goods sold / ending inventory]
    • Fixed asset turnover [sales / net fixed assets]
  • Financial Leverage Ratios
    • Debt-to-asset ratio [total liabilities / total assets]
    • Debt-to-equity ratio [total liabilities / total stockholders’ equity]
    • Times-interest-earned (TIE) ratio [EBIT / interest]
  • Profitability Ratios
    • Net profit margin [net income / sales]
    • Return on assets (ROA) [net income / total assets]
    • Return on equity (ROE) [net income / total stockholders’ equity]
  • Market-Based Ratios
    • Price-to-earnings (P/E) ratio [stock price / earnings per share]
    • Price-to-book (P/B) ratio [market value of common stock / total stockholders’ equity]

You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2012 to 2013, why do you think that it increased? Is it a good or bad sign that the ratio increased? Please explain.

If a ratio decreased from 2012 to 2013, why do you think that it decreased? Is it a good or bad sign that the ratio decreased? Please explain.

If a ratio was unchanged from 2012 to 2013, why do you think that it was unchanged? Is it a good or bad sign that the ratio was unchanged? Please explain.

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