Purpose: Understand the information provided by the current ratio and the debt ratio. Liquidity and Solvency...

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Purpose: Understand the information provided by the current ratio and the debt ratio. Liquidity and Solvency Ratios measure the ability to meet financial obligations and the level of financial risk. The Current Ratio measures the ability to pay current payables as they come due by comparing current assets to current liabilities. It is a measure of short-term liquidity. A higher ratio indicates a stronger ability to pay current debts. Current Ratio Current assets Current liabilities The Debt Ratio measures the proportion of assets financed by debt by comparing total liabilities to total assets. It is a measure of long-term solvency. A higher ratio indicates greater financial risk. Debt Ratio Total liabilities Total assets Industry For the year 2010 Average for Restaurants DineEquity Darden Restaurants Nathan's Famous (DIN) (DRI) (NATH) Current Ratio 1.1 1.32 0.54 6.12 Debt Ratio 52% 97% 64% 17% Debt-to-Equity Ratio* 1.10 33.17 1.77 0.20 Use the chart above to answer the following questions. Stock symbols are shown in parentheses. Q1 Of the above three restaurant chains, which is your favorite? (DIN/DRINATH) ⚫DIN operates Applebee's Neighborhood Grill & Bar and IHOP. 22 Q3 Q4 Q5 •DRI operates Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones Barbeque and Grill. NATH operates Nathan's Famous. (DIN/DRI/NATH) have sufficient current assets to pay off current liabilities and, therefore, have a current ratio (greater/less) than 1.0. A current ratio that is (lower/higher) than the industry average may indicate a lack of short-term liquidity, which includes (DIN/DRI/NATH). Does this indicate that this corporation is insolvent or unable to pay its bills? (Yes/No) Explain. (DIN/DRI/NATH) are relying more on debt to finance assets and have a debt ratio (greater/less) % of assets with debt. For a company than 50%. Darden Restaurants is financing. wanting to be lower risk and less dependent on debt, a(n) (increasing / decreasing) trend in the debt ratio is considered favorable. A company that has higher financial risk will, in general, be required to pay (higher / lower) interest rates when borrowing money. Why does a company with a higher debt ratio tend to have greater financial risk? Does a high debt ratio indicate a weak corporation? (Yes/No) Explain your answer. Purpose: Understand the information provided by the current ratio and the debt ratio. Liquidity and Solvency Ratios measure the ability to meet financial obligations and the level of financial risk. The Current Ratio measures the ability to pay current payables as they come due by comparing current assets to current liabilities. It is a measure of short-term liquidity. A higher ratio indicates a stronger ability to pay current debts. Current Ratio Current assets Current liabilities The Debt Ratio measures the proportion of assets financed by debt by comparing total liabilities to total assets. It is a measure of long-term solvency. A higher ratio indicates greater financial risk. Debt Ratio Total liabilities Total assets Industry For the year 2010 Average for Restaurants DineEquity Darden Restaurants Nathan's Famous (DIN) (DRI) (NATH) Current Ratio 1.1 1.32 0.54 6.12 Debt Ratio 52% 97% 64% 17% Debt-to-Equity Ratio* 1.10 33.17 1.77 0.20 Use the chart above to answer the following questions. Stock symbols are shown in parentheses. Q1 Of the above three restaurant chains, which is your favorite? (DIN/DRINATH) ⚫DIN operates Applebee's Neighborhood Grill & Bar and IHOP. 22 Q3 Q4 Q5 •DRI operates Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones Barbeque and Grill. NATH operates Nathan's Famous. (DIN/DRI/NATH) have sufficient current assets to pay off current liabilities and, therefore, have a current ratio (greater/less) than 1.0. A current ratio that is (lower/higher) than the industry average may indicate a lack of short-term liquidity, which includes (DIN/DRI/NATH). Does this indicate that this corporation is insolvent or unable to pay its bills? (Yes/No) Explain. (DIN/DRI/NATH) are relying more on debt to finance assets and have a debt ratio (greater/less) % of assets with debt. For a company than 50%. Darden Restaurants is financing. wanting to be lower risk and less dependent on debt, a(n) (increasing / decreasing) trend in the debt ratio is considered favorable. A company that has higher financial risk will, in general, be required to pay (higher / lower) interest rates when borrowing money. Why does a company with a higher debt ratio tend to have greater financial risk? Does a high debt ratio indicate a weak corporation? (Yes/No) Explain your answer.

Answer rating: 100% (QA)

Understanding Restaurant Chain Financials The provided information allows us to analyze the financial health of three restaurant chains DIN DRI NATH b... View the full answer