Why are ratios said to be mechanical and incomplete by themselves? b) The following data relates to
Question:
Why are ratios said to be mechanical and incomplete by themselves?
b) The following data relates to two companies’ annual reports
Company ABC Company XYZ
$ $
Total Current assets 7,683,200 1,900,000
Total Current liabilities 5,472,600 1,201,400
Total quick assets 3,766,600 918,600
Average Total assets 19,579,200 4,979,200
Average stockholders’ equity 6,563,400 2,001,600
Operating Income 2,270,800 485,800
Net Income 1,222,000 236,000
Required
1. Compute the following for each company (round computations to one decimal place). Show how each ratio is computed.
a. Current ratio
b. Quick ratio
c. Working Capital
d. Return on average total assets
e. Return on average total shareholders’ equity
2. From the viewpoint of a short-term creditor, which of these companies appears to have greater short-term debt paying capability? Explain
Expert Answer:
a Ratios are said to be mechanical and incomplete by themselves because they are merely mathematical ... View the full answer
Understanding financial statements
ISBN: 978-0136086246
9th Edition
Authors: Lyn M. Fraser, Aileen Ormiston
