Use the blue examination book attached to present your answers for Problems Nos.
ID: 2451738 • Letter: U
Question
Use the blue examination book attached to present your answers for Problems Nos. 46-47 The following are simplified, vertical, common-size balance sheets for three firms - a retailer, a service film, and a manufacturer. Required: Listed below are three groupings of financial ratios. Liquidity Long-term borrowing ability Profitability Briefly describe what each one measures. Listed below are three groups of users of financial statements Suppliers of raw materials Potential stockholders Bondholders For each group, select the type of ratios from part (a) that each group might be most interested in. Briefly explain your choice.Explanation / Answer
Question no 46
Firm A is the retailing firm, due to the heavy investment in receivables and inventory with limitedfixed assets. The store facilities may be rented.
Firm B is the service firm, due to the limited inventory.
Firm C is the manufacturing firm, due to the combined heavy investment in inventory and fixed assets.Also, it uses substantial long-term debt.
Question no 47
a .Liquidity ratios measure the firm's ability to pay its current obligations.
Long-term borrowing ability measures the degree of protection of long-term suppliers offunds.
Profitability ratios measure the earning ability of the firm.
b. Suppliers of raw materials would be most interested in liquidity since their goods and relatedobligations are primarily short-term.
Potential stockholders would be most interested in the earning ability of the firm since theyshare in residual profits.
Bondholders would be most interested in the long-term borrowing capacity since thismeasures the risk of default.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.