compute the following to help me better understand problem: Practice problem not graded

18 3. Why is XYZ Company's ROE so much higher than the Industry Average? 4 . Comment on XYZ's overall profit picture. (Include a comment on the firm's Dividend Policy).16 XYZ COMPANY, INC Comparative Ratio Analysis 1996 Current Ratio 1997 1998 Industry 1. 20 Quick Ratio 1. 25 1. 30 60 55 Acc. Rec. Turnover 50 28 days 27 days 35 days Inventory Turnover 50 days 51 days 60 days Acc. Pay Turnover 41 days 42 days 45 days Debt to Worth 2.5 x 3.5 x 2.8 X Long Term Debt to 40.2 8 Capitaliztion 30. 2 8 45.7 8 Times Interest Earned 12. 20 X 9. 52 X 12 . 21 X Gross Profit Margin 21.0 8 22.5 8 15.2 8 Net Profit Margin 3.5 8 4.2 8 2.5 8 Return on Assets 7. 75 8 10.65 8 6.1 8 Return on Equity 63. 8 8 77. 65 8 42.6 8 Dividend Payout 84 .5 8 85 .1 8 27.2 8 Now that you have calculated the various ratios of XYZ Company, Inc. , place them into the "Comparative Ratio Analysis" Chart above. Answer the following questions relative to XYZ Company, Inc. A. Liquidity 1. List all pertinent ratios that you should concentrate on from those listed above. 2. Briefly comment on the trend of each liquidity ratio and compare to the industry average (Place answer in a chart format on the neX C B ctri Trend Industry Ratio Comparison Comment 17 E 15 3 . Comment on XYZ's overall Liquidity B. Debt Position and Interest Coverage 1 . List all pertinent ratios you should concentrate on from those listed on the previous page. 2 . Comment on the trend of each debt position and interest coverage ratio and compare it to the industry average. Industry Ratio Trend Comparison Comment 3. Comment on XYZ's overall debt position. Does the firm have the ability to take on much more additional debt? C. Profitability 1 . List all pertinent ratios you should concentrate on listed on the previous page. 2 . Comment on the trend of each profitability ratio and compare it to the industry average. Industry Ratio Trend Comparison Comment