# Liquidity Ratios and Solvency Ratios in accounting

I have to choose two publicly traded companies and compute liquidity ratios and solvency ratios. I have chosen Dell and HP as my companies and the financial information for the FY2008 has been attached for each company. The list below is what I have to derive from the information.

Compute the following liquidity ratios for each of the companies, and comment on the relative liquidity of the two competitors.

i) Current ratio.

ii) Receivables turnover.

iii) Average collection period.

Compute the following solvency ratios for each of the companies, and comment on the relative solvency of the two competitors.

i) Debt to total assets ratio.

ii) Times interest earned.

iii) Cash debt coverage ratio.

iv) Free cash flow.

iv) Inventory turnover.

vi) Current cash debt coverage.

Compute the following profitability ratios for each of the companies, and comment on the relative profitability of the two competitors.

i) Profit margin.

ii) Asset turnover.

iii) Return on assets.

iv) Return on common stockholders' equity.

e) Which of the two companies would you prefer to invest in? Why, and under what circumstances?

I understand that to get the current ratio you have to divide current assets by liabilities. I have found this information. I also understand many of the ways to get the information, but I am having difficulty finding the information in the financial statements. If you could please help me get the information and give me where you found it in the documents.

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#### Solution Preview

I have to choose two publicly traded companies and compute liquidity ratios and solvency ratios. I have chosen Dell and HP as my companies and the financial information for the FY2008 has been attached for each company. The list below is what I have to derive from the information.

Compute the following liquidity ratios for each of the companies, and comment on the relative liquidity of the ...

#### Solution Summary

Response provides guidance regarding liquidity Ratios and Solvency Ratios in accounting