Company Financial Ratio Analysis Solved

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Examples of Financial ratios:

In an excel sheet, using the attached financial statements calculate the following ratios for both companies. In the body of text for each area of comparison, using the calculated the ratio, indicate which company is in a stronger position, and briefly explain your rationale.

Liquidity Ratios:

current ratio = total current assets / total current liabilities

quick ratio = (total current assets − inventories) / current liabilities

net working capital = current assets − current liabilities

Activity Ratios:

total asset turnover ratio = revenues / total assets

Financial Leverage Ratios

total asset turnover ratio = revenues / total assets

debt–equity ratio = total debt / total shareholders’ equity

Probability Ratios:

net profit margin = net income / sales or revenues

gross profit margin = earnings before interest and taxes / sales or revenues

return on assets = net income / total assets

return on equity = net income / stockholders’ equity