Question

Financial Analysis Questions on;

Industry: Automotive

1. When the debt to equity ratio and long term debt to equity ratio is ABOVE the industry average is it bad or good and what does it tell?

2. When the Inventory turnover ratio, Net income/Employees ratio, and Revenue/Employees ratio are BELOW the industry average, what does it tell? Explain and is it bad or good.

3. When the Asset turnover ratio and receivable turnover ratio are ABOVE the industry average is it good or bad and what does it tell?

4. When the ROA, ROE, ROI, Gross Margin, operating margin, net profit margin, and EBITDA margin ratios are ABOVE the industry average, what does it tell? Good or bad? and what if it is BELOW?

Please explain what each means and indicate if it's good or bad.

Thanks in advance!

Answer 1

1. Debt to equity ratio above the industry norms is bad. Debt to equity ratio is calculated by dividing debt of the company by the equity of the company. Higher debt to equity ratio than industry norms represents that company have more debt to be covered by equity than the industry in general.