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# Ratio analysis, liquidity, profitability, stockholders returns

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Based on your analysis, determine which company is better able to pay current liabilities (debt). Explain your rationale.

Determine what profitability ratios can tell you about a company's performance and how that information would influence investing decisions.

Determine which financial ratios you would use and how you would use them to determine which company has the most satisfied stockholders.

Create a list of financial-based guidelines that you should follow when selecting which of these two companies to invest in.

Determine which single piece of non-financial data is the most important to consider when making decisions about whether or not to invest in accompany. Explain your reasoning

#### Solution Preview

Please refer to the attached file for the response.

FINANCIAL MANAGEMENT: INTERPRETATIONS OF FINANCIAL RATIOS

A company that is better able to pay its current liabilities
A company that has higher current and acid test ratios would have a better capability to pay its short term or current liabilities. Current ratio which is computed by current assets/current liabilities shows the adequacy of the firm's current assets to pay its current liabilities. A current ratio of 2:1 indicates that for every 1 unit of current liability, there are 2 units of current assets, showing a high adequacy of assets to finance current liabilities.
Aside from current ratio, a better gauge is acid-test ratio which deducts inventory from the current assets. Hence, the formula is (current assets - inventories)/current liabilities. This is a better gauge because inventory, the most illiquid among all current assets has been deducted to come up with a ratio which is acid-test or quick ratio.

Profitability ratios that can tell you about a company's performance and its influence on investing decisions
1. Return on investment = net earnings/total assets
This shows how the company is utilizing its ...

#### Solution Summary

The expert examines ration analysis, liquidity, profitability and stockholders returns. What profitability ratios can tell you about a company's performance and how that information would influence investing decisions is determined.

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