uestion 2 15 points Financial ratios Interpret these ratios

uestion 2 (15 points) Financial ratios- Interpret these ratios for a consumer products company that makes notebook laptop computers. Be sure to compare 2012 and 2013, the company with its main competitor and the industry. 2012 xYZ Company 2013 -XYZ 2 Company 2013-A Industry average Company Current ratio 2.1 2.8 2.0 1.5 7.2 5.1 6.0 Profit Margin 7.8 Debt-Asset Ratio 4 Inventory .5 10 12 12 14 Turnover

Solution

The current ratio- current assets /liabilities is better than competitor as well as industry average and has improved from 2013 to 2013. It means that the company is more solvent and can payoff its due current liabilites with a greater ease.

Profit margin or net income income/sales ratio has deteiorated from 2013 to 2013. However it is still better than its competitor and industry average. it means that the company has more operational efficiency and earns greater profit for its sales as compared to others.

Debt asset ratio for company has increased and it is greater than its competitor and industry average. This goes to show that the company employs more debt in its capital structure as compared to its competitor or industry average. A larger profitability for the company maybe because of tax shiedl due to using more debt

Inventory turover=COGS/Average invenotry. It has improved for company from 2012 to 2013. It is also better than competitor and industry average. It means that the company has better inventory management and yields a greater amount of sale per unit of invesntory.