Presented below are selected ratios for four firms. Tweeter is a distiller, Clinton is a jewelry retailer,
Question:
Required:
1. Explain why the long-term debt to equity ratio is so much higher for the airline and hotel chain than it is for the distiller and jewelry retailer.
2. Explain why the turnover ratios vary so much among the four firms.
3. Explain why the return on equity for the airline and hotel chain is higher than for the distiller and jewelry retailer when their operating income and net income percentages are considerably smaller?
Smith Tweeter Clinton Orlando Short-term liquidity ratio Current ratio 1.5 3.5 0.9 1.4 Debt management ratio Long-term debt to equity Asset efficiency ratios Accounts receivable turnover 209.48 0.24 0.20 562.11 19.72 7.66 17.07 11.09 Inventory turnover Profitability ratios Operating income Net income 7.24 2.30 0.95 31.43 4.2% 17.7% 15.5% 9.6 9.2% 13.1 2.2 5.4 11.9 Return on assets 8.6 1.8 7.9 Return on equity 23.7 14.9 49.2 34.5
Step by Step Answer:
1 The longterm debt to equity ratio is so much higher for the airline and the hotel chain because th...View the full answer
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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