Quick and Current Liquidity Ratios, DuPont Ratio, Profit Margin, Asset Utilization and Financial Leverage for GE.
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GE does business in Puerto Rico. Compute the quick and current liquidity ratios, the DuPont ratio, profit margin, asset utilization, and financial leverage for GE.
Discuss how measurement conventions (IASB and FASB) affect presentations. If your chosen company uses the cash basis of accounting, how would that differ from the accrual basis?
Discuss the four financial statements used at the company. How might changing one of the financial statements affect the other financial statements? Why is it essential to understand the relationship between the financial statements?
about 500 words, 7 references
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Solution Summary
The solution calculates the quick and current liquidity ratios, duPont ratio, profit margin, asset utilization and financial leverage for GE.
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Running Head: GE MANUFACTURING
Financial Ratio of GE Manufacturing Puerto Rico
Financial Ratio of General Electrical (GE)
Liquidity Ratios:
(All figures in $ billions) For 2009
Quick ratio: (Current Assets - inventory) ÷ Current liabilities 2.22
Current Assets $496.06
Current liabilities $218.40
Inventory $11.99
Current ratio: Current assets ÷ current liabilities 2.27
(Source: GE, 2009)
Profit Margin Ratios:
Profit margin: Net income ÷ revenue 7.03%
Net income $11.03
Revenue $156.78
(Source: GE, 2009)
Assets Utilization Ratios:
Total assets turnover ratio: Cost of goods sold ÷ total assets 10.10%
Cost of goods sold $78.94
Total assets $781.82
Fixed assets turnover ratio: Cost of goods sold ÷ fixed assets 0.28
Fixed assets 285.763
Current assets turnover ratio: Cost of goods sold ÷ current assets 0.16
Current assets $496.06
(Source: GE, 2009)
DuPont Ratio:
Return on equity (ROE): Profit margin × total assets turnover ratio × equity multiplier 4.69%
Profit margin 7.03%
Total assets turnover ratio 0.10
Equity multiplier Total assets / shareholder's equity 6.67
Total assets $781.82
Shareholder's equity $117.29
(Source: GE, 2009)
Financial Leverage Ratios:
Debt ratio Total debt ÷ total assets 43.26%
Total debt $338.22
Total assets $781.82
Debt to equity ratio: Total debt ÷ total equity 2.88
Total equity $117.29
Interest coverage ratio: EBIT ÷ interest charges 1.55
EBIT $29.11
Interest charges $18.77
(Brigham & Daves, 2010).
Impact of Measurement Conventions on Presentations of GE
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Committee (IASC) defines the GAAP ...
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