Question

There is a discrepancy with the Google Form for Homework 3 submission. The Google Form incorrectly calls for 2017 and 2018 data. Use your 2018 solutions for the 2017 submissions and your 2019 solutions for the 2018 submission --- that is to say make sure that the 1st Years and the 2nd Years match up.

Sorry for the confusion.

2018 2019 2018 2019 2018 2019 Revenue COGS Gross Profit EBITDA Taxes Net Income Total Assets 5674 3442 2232 1470 510 960 5255 3084 3145 873 221 1298 6041 3664 2376 1430 861 569 5595 3687 3369 525 2028 1382 176896 144924 31972 7962 6522 1440 275936 13442 62923 53604 10271 208890 196106 160662 5444 23676 15815 7860 305901 38519 204341 35807 136499 231574 179083 144249 34834 15990 4309 11681 244587 89999 91387 85373 13799 69215 153963 124015 29947 8606 2473 6133 210279 126238 60429 24534 17365 59506 Current Assets Current Liabilities Inventory Long-Term Debt Which company has the best liquidity (highest current ratio) in 2019? Which company does the best job generating profits for shareholders in 2019? (ROE) . Which company does the best job generating profits with its total investment in 2019? (ROA) Which company is the most leveraged (high long-term debt to equity) in 2019? 5. Which company has the biggest current threat of being illiquid (lowest current ratio) in 2019? 6. Which company saw the biggest increase in its net profit margin from 2018 to 2019 (or smallest decrease if NI all negative)? What is co mpany 2's ROA in 2019? 8. What is company I's ROA in 2018? What is company 3's ROA in 2019? 10. Which company has the highest gross margin in 2019? 11. What is company I's quick ratio in 2018? 12. What is company 2's current ratio in 2019? 13. What is company 3's net margin in 2019? 14. What is company 2's inventory turnover in 2019? 15. What is company 3's long-term debt to assets ratio in 2018?

Answer 1

1. The current ratios for all three companies are calculated as the ratio of Current Assets to Current Liabilities. For the year 2019, the current ratios are as follows:

1	2	3
6.42	5.71	2.46

Hence, with the highest current ratio of 6.42, company 1 has the best liquidity in the year 2019.

2. The Return on Equity (ROE) is computed as the ratio of Net income to Equity. For the year 2019, the ROE are as follows:

1	2	3
15.43%	20.41%	4.86%

With the highest ROE of 20.41%, company 2 generates maximum profit for the shareholders in 2019.

3. The Return on Assets (ROA) is computed as the ratio of Net income to Total Assets. For the year 2019, the ROA are as follows:

1	2	3
10.17%	2.57%	2.92%

With the highest ROA of 10.17%, company 1 generates maximum profit on its investments in 2019.

4. The extent of leveraging of a company is computed as the ratio of Long-term debt to Equity. For the year 2019, the debt to equity ratios are as follows:

1	2	3
0.37	6.01	0.47

With the highest Long-term debt to equity ratio of 6.01, company 2 is the most leveraged in the year 2019.

5. The current ratios for all three companies are calculated as the ratio of Current Assets to Current Liabilities. For the year 2019, the current ratios are as follows:

1	2	3
6.42	5.71	2.46

Hence, with the lowest current ratio of 2.46, company 3 is facing the threat of being illequid in the year 2019.

6. The net profit margin is computed as the ratio of net income to revenues. The net profit margin for all three companies for the year 2018 and 2019 are shown in the table as follows, along with the change in 2019 in comparison to 2018:

	1		2		3
	2018	2019	2018	2019	2018	2019
Net profit margin	16.92%	9.42%	0.81%	4.01%	6.52%	3.98%
% change from 2018 to 2019		-44.33%		392.37%		-38.93%

Company 1 and company 2 have shown decline in the net profit margin in 2019 as compared to 2018. Company 2 has shown the highest increase of 392.37% in the net profit margin.

7. The ROA of company 2 in 2019 is derived as 2.57%.

8. The ROA of company 1 in 2018 is derived as 18.27%.

9. The ROA of company 3 in 2019 is derived as 2.92%.

10. The Gross Profit Margin is computed as the ratio of Gross Profit to Revenues. For the year 2019, the gross profit margins are as follows:

1	2	3
39.33%	18.07%	19.45%

Company 1 has the highest gross profit margin of 39.33% in the year 2019.

11. The quick ratio is computed by the formula

Quick ratio=(Current assets-inventory)/Current Liabilities

The quick ratio for company 1 in the year 2018 is computed as

= (3145-221)/873

= 3.35

Hence, quick ratio for company 1 in the year 2018 is 3.35.

12. The current ratio for company 2 in 2019 is derived as 5.71.

13. The net margin for company 3 in 2019 is derived as 3.98%.

14. The inventory turnover is computed using the formula

Inventory turnover=COGS/Average inventory

The average inventory for company 2 in the year 2019 is computed as

(10271+136499)/2= 73,385

Therefore, the inventory turnover shall be =160662/73385= 2.19.

Hence, the inventory turnover for company 2 in the year 2019 is derived as 2.19.

15. The long-term debt to asset ratio for company 3 in 2018 is computed as

=69215/244587

=0.28

Hence, the long-term debt to asset ratio for company 3 in 2018 is 0.28.