Question

can someone answer please

Question 2 Not yet answered An analyst computes the following ratios for Iris Carpeting Inc. and compares the results to the industry averages. Marked out of 350 P Flag question Iris Carpeting Industry Average 2.3x 1.8% Financial Ratios Current Ratio Net Profit Margin Return on Equity Total Debt / Total Equity 225 24% 17% 20% 35% 56% Times Interest Earned 4.7x 4.1x Required: Based on the above data, state your comments on the liquidity, profitability and debt position of the company as compared to the industry. (CLO 1) 7 A B 1

Answer 1

Liquidity

Current Ratio of the company is better than the industry average. So, the company has good ability to pay off its current liabilities with its current assets such as Cash, Accounts receivables and Inventory. without raising any external capital, the company can manage to pay off its current debt obligations.

Profitability

Net Profit Margin and Return on Equity are less for the company compared to the industry average.

This shows that there is a decline in company's oerformance and profitability levels. Low Net profit margin points towards the company usage of inefficient cost structure and it may also needs improvement in its price setting. It may also result from less efficient management. The lesser Return on equity shows that the company is less efficient than others in generating profit.

Debt Position

Debt to Equity ratio is less than the Industry average which shows that the company is using less leverage when compared to its peers. It indicates that the company is posing less risk to its shareholders. It also reflects the good ability of the shareholder equity to cover its outstanding debts in case of an economic volatility.

The higher Times Interest earned shows that the company poses less risk to the investors and creditors in terms of solvency.