Question: The following ratios are computed based on the financial data of SuperMart, a large company that operates in food and staple retailing. Ratio 2019 2020

The following ratios are computed based on the financial data of SuperMart, a large company that operates in food and staple retailing.

Ratio

2019

2020

Operating profit margin

4.54%

5.06%

ROA

7.96%

5.74%

Current ratio

1.12:1

1.23:1

Quick ratio

0.28:1

0.23:1

Average Inventory turnover period

36.51 days

35.26 days

Average Accounts Receivable settlement period

0.69 days

0.73 days

Average Accounts Payable settlement period

40.62 days

43.04 days

Required:

  1. Interpret the change in the operating profit margin in 2019-2020. Consider carefully what aspect of the operating had changed in the period.
  2. Interpret the change in the ROA in 2019-2020. Consider carefully what aspect of the operating had changed in the period.
  3. The operating profit margin and ROA showed opposite trends in 2019-2020. Provide two possible explanations to account for the disparity.
  4. The company did not have a liquidity issue despite a low quick ratio in both years, why do you think this might be the case.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!