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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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    https://brainmass.com/business/profitability-index/43050

    Solution Preview

    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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