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    Financial pressure and ratios

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    A firm faces financial pressures from attempting to grow too rapidly. Which of the following ratios would you expect to be impacted the most by these pressures? Why?

    Current ratio
    Quick ratio
    Inventory turnover ratio
    Days sales outstanding
    Fixed assets turnover ratio
    Total assets turnover ratio
    Debt ratio
    Times-interest-earned ratio
    EBITDA coverage ratio
    Profit margin on sales
    Basic earning power
    Return on total assets (ROA)
    Return on common equity (ROE)
    Price / earnings ratio
    Price / cash flow ratio
    Market / book ratio

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    Solution Preview


    Following ratio would get impacted:

    (i) Inventory Turnover Ratio: The company will have to increase its inventory turn over ratio to increase its operation and generate more revenue.

    (ii) Fixed asset Turnover Ratio: The ...

    Solution Summary

    This solution explores how financial pressure due to rapid growth affects financial ratios.