Question

1. Is BFI Trading Ltd.'s liquidity ratios better or worse than Lin Corp? Explain your reasoning. BFI Trading Ltd. Lin Corp. Current ratio = 894,000.00 Current ratio = 1,002,000.00 748,000.00 800,000.00 = 1.2 = 1.25 Acid-test ratio = Acid-test ratio = 134,000 + 0 + 312,000 748,000 = 446,000 748,000 =0.60 110,000 + 24,000 + 392,000 800,000 = 526,000 800,000 =0.66

Answer 1

BFI's liquidity ratios are worse than that of Lin Corp. In case of liquidity ratios, the higher the better is the criteria. Further, current ratio is 1.25 in case of Lin which is better than that of BFI and same goes for Acid-test ratio. Efficiency ratio indicate how well are assets used to generate income. A higher inventory turnover and raceable turnover indicate the efficiency of a company, in terms of managing the inventory and collecting the receivables respectively. Further, lower Days sales in receivables reflects a better collection of receivables as outstanding amount is less. Hence, BFI Trading Ltd. efficiency ratios are worse than Lin Corp. Lower debt ratio indicates lower debt which means consequently the interest burden will also be less. So, Lower the debt equity ratio the better it is in usual scenario. Also, A high times interest earned ratio means, EBIT covers interest higher number of times and therefore, Higher ratio as in case of Lin Corp. is better. Hence, Hence, BFI Trading Ltd. debt ratios are worse than Lin Corp.