Ratio 2010 2009 2008 2010 Industry Average Long-term debt 0.45 0.40 0.35 0.35 In
ID: 2427160 • Letter: R
Question
Ratio
2010
2009
2008
2010
Industry Average
Long-term debt
0.45
0.40
0.35
0.35
Inventory turnover
62.65
42.42
32.25
53.25
Depreciation/total assets
0.25
0.014
0.018
0.015
Days’ sales in receivables
113
98
94
130.25
Debt to equity
0.75
0.85
0.90
0.88
Profit margin
0.082
0.07
0.06
0.075
Total asset turnover
0.54
0.65
0.70
0.40
Quick ratio
1.028
1.03
1.029
1.031
Current ratio
1.33
1.21
1.15
1.25
Times interest earned
0.9
4.375
4.45
4.65
Equity multiplier
1.75
1.85
1.90
1.88
Referring to the given data, the CEO of WQY Inc. wrote, "2008 was a good year for the firm with respect to our ability to meet our short-term obligations. We had higher liquidity largely due to an increase in highly liquid current assets (cash, account receivables, and short-term marketable securities)."
Do you think the CEO is correct in making this statement? Explain your stand and use only the given data for your analysis.
Submission Requirements:
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Ratio
2010
2009
2008
2010
Industry Average
Long-term debt
0.45
0.40
0.35
0.35
Inventory turnover
62.65
42.42
32.25
53.25
Depreciation/total assets
0.25
0.014
0.018
0.015
Days’ sales in receivables
113
98
94
130.25
Debt to equity
0.75
0.85
0.90
0.88
Profit margin
0.082
0.07
0.06
0.075
Total asset turnover
0.54
0.65
0.70
0.40
Quick ratio
1.028
1.03
1.029
1.031
Current ratio
1.33
1.21
1.15
1.25
Times interest earned
0.9
4.375
4.45
4.65
Equity multiplier
1.75
1.85
1.90
1.88
Explanation / Answer
No, the statement is not correct given by CEO:-
Quick ratio measures the short term liquidity to pay expense, that means that the ratio decides whether the company is in position to pay off its short term obligation or not.
The higher the liquidity ratio, the better for the company to cover(pay) its expense.
CEO of WQY mentioned that 2008 year is good year for the firm with respect to our ability to meet our short-term obligations.
The ratio of quick ratio/ acid test ratio is higher in 2010 of year, where it is 1.031 as compare to 1.029 in 2008 of year
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