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Liquidity, Profitability and Solvency Ratios of two companies

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A. Discuss the relative liquidity of the two companies.
B. Discuss the relative profitability of the two companies
C. Discuss the relative solvency of the two companies

Liquidity ratios Company A Company B
(1)Current ratio 1.26:1 1.22:1
(2)Quick (acid-test) ratio 0.81:1 0.61:1
(3)Current cash debt coverage 0.38:1 0.20:1
(4)Accounts receivable turnover 3.60 times 7.78 times
(5)Inventory turnover 6.39 times 5.30 times

Profitability ratios
(1)Asset turnover 0.93:1 1.29:1
(2)Profit margin on sales 7.35% 4.65%
(3)Return on assets 6.87% 6.02%
(4)Returrn on common
stockholders' equity 36.07% 18.59%
Solvency ratios
(1)Debt to assets 79.87% 74.87%
(2)Times interest earned 9.57 times 13.40 times

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A. Discuss the relative liquidity of the two companies.

Liquidity ratios Company A Company B
(1)Current ratio 1.26:1 1.22:1
(2)Quick (acid-test) ratio 0.81:1 0.61:1
(3)Current cash debt coverage 0.38:1 0.20:1
(4)Accounts receivable turnover 3.60 times 7.78 times
(5)Inventory turnover 6.39 times 5.30 times

The liquidity of both companies is poor but company A has a relatively better liquidity than B. The current ratio of both is quite lower than the norm or around 1.6. ...

Solution Summary

The solution computes the ratios and compares Company A to Company B with three paragraphs of narrative data.

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See Also This Related BrainMass Solution

Compute selected ratios,and compare liquidity, profitability, and solvency for 2 companies.

Selected financial data of target and walmart for 2001 are presented here in millions.
target walmart
------------------------------------
income statement data for year

net sales $39,176 $217,799
cost of goods sold $27,246 $171,562
selling&administrative- $9,962 $36,173
expenses
Interest expense $464 $1,326
other income expense $712 $2,013
income tax expense $842 $3,897
_______________________
net income $1,374 $6,854

Balance Sheet date(end of yr)

Current assets $9,648 $28,246
Non current assets $14,506 $55,205
__________________________
total assets $24,154 $83,451

Current liabilities $7,054 $27,282
long term debt $9,240 $21,067
total stockholders equity $7,860 $35,102
_________________________
total liabilities&stockholders $24,154 $83,451
equity

Beginning of the year balances

Total assets $19,490 $78,130
total stockholders equity $6,519 $31,343
current liabilities $6,301 $28,949
___________________________
total liabilities $12,971 $46,787

Other Data
average net $1,916 $1,884
receivables
Average inventory $4,349 $22,028
Net cash provided
by operating activities $1,992 $10,260

Instructions:
a. for each company, compute the following ratios.
1. current
2. receivables turnover
3.average collection period
4. inventory turnover
5. days in inventory
6. profit margin
7. asset turnover
8. return on assets
9. return on common stockholders equity
10. debt to total assets
11. times interest earned
b. compare the liquidity, solvency, and profitability of the two companies.

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