Calculate the (debt) and (days receivable ) ratios for each year: 2008, 2009
Discuss the trend for each ratio and what it tells you about the organization's financial health.
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a. The debt ratio and the days receivable ratio are shown below
Debt Ratio 42.2% 44.7%
Days Receivable 12.7 13.2
The debt ratio is calculated as total liabilities/total assets and reflects the amount of assets financed by liabilities and so is a leverage ratio and gives and indication of the financial risk of the firm. Higher the debt ratio, more are the assets financed by liabilities and so higher is the financial risk of the firm. If more assets are financed by liabilities, then the level of debt may be unsustainable and there would be high risk of financial distress.
Days receivables shows how many days the firm takes to collect its receivables and is calculated as Average receivables / per day sales. For Lowe, there are no ...
The solution explains how to assess financial performance with debt and receivable ratios