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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 Summary

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

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Answer:

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 provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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