Question 1 (a) The table below shows the ratios for two companies. Unfortunately, the accounts clerk...

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Question 1 (a) The table below shows the ratios for two companies. Unfortunately, the accounts clerk who computed the ratios made an error and is now unsure of the identities of the two companies. Possible candidates are: a bubble tea company, a sporting shoe and apparel retailer, and a heavy equipment manufacturer. Debt-equity Inventory Turnover Current Ratio Sales/Total Assets Sales/Receivables COMPANY 1 0.1 60.0 0.5 15.0 90.0 2 0.3 15.0 0.9 8.0 60.6 Interpret the ratios in the table above to identify the two (2) companies and briefly discuss one (1) reason in the following format: The bubble tea company is likely to be company 1 /2 / none of them (choose one (1)). Reason: The sporting shoe and apparel retailer is likely to be company 1/2 / none of them (choose one (1)). Reason: The heavy equipment manufacturer is likely to be company 1 /2 / none of them (choose one (1)). Reason: Note: For your answer, you do not have to follow the same order as the listing of the companies above. (10 marks) (b) (c) Ratios are often used to compare the performance of companies. Briefly discuss two (2) reasons why ratios may not be appropriate for use in making comparisons between two companies. (6 marks) Mr Chan the CEO of ABC Company owns 70% of the shares. He makes the following statement: "Since I own such a large amount of shares in the company, any decision I make is always in the best interests of the shareholders". Appraise the statement and discuss whether you agree with Mr Chan or not. (4 marks) Question 1 (a) The table below shows the ratios for two companies. Unfortunately, the accounts clerk who computed the ratios made an error and is now unsure of the identities of the two companies. Possible candidates are: a bubble tea company, a sporting shoe and apparel retailer, and a heavy equipment manufacturer. Debt-equity Inventory Turnover Current Ratio Sales/Total Assets Sales/Receivables COMPANY 1 0.1 60.0 0.5 15.0 90.0 2 0.3 15.0 0.9 8.0 60.6 Interpret the ratios in the table above to identify the two (2) companies and briefly discuss one (1) reason in the following format: The bubble tea company is likely to be company 1 /2 / none of them (choose one (1)). Reason: The sporting shoe and apparel retailer is likely to be company 1/2 / none of them (choose one (1)). Reason: The heavy equipment manufacturer is likely to be company 1 /2 / none of them (choose one (1)). Reason: Note: For your answer, you do not have to follow the same order as the listing of the companies above. (10 marks) (b) (c) Ratios are often used to compare the performance of companies. Briefly discuss two (2) reasons why ratios may not be appropriate for use in making comparisons between two companies. (6 marks) Mr Chan the CEO of ABC Company owns 70% of the shares. He makes the following statement: "Since I own such a large amount of shares in the company, any decision I make is always in the best interests of the shareholders". Appraise the statement and discuss whether you agree with Mr Chan or not. (4 marks)

Answer rating: 100% (QA)

a The bubble tea company is likely to be company 2 since they are having a less sales to receivables ratio than the first company The current ratio fo... View the full answer