Homework Answers
Sol: Liquidity Ratio
Particulars Amount (Million) in $
Cash 120
Securities 205
Receivables 440
Inventory 567
Total current assets 1332
Payables 510
Bank notes 350
Other 131
Total current liablities 991
1) Current ratio = Current Assets
Current Liabilities
= 1332
991
= 1.344
2) Quick ratio = Current Assets - Inventory
Current liability
= 1332 - 567
991
= 0.772
3) Liquidity ratio = Cash + Marketable securities
Current Liability
= 120+ 205
991
= 0.328
Correct option -> BR is less liquid than the industry average according to both the current and quick ratio.
If the ratio is lower , it means the company has low liquidity and is relying on its operating cash flow and loans to meet its obgligation.
Liquidity ratio is to measure the company's ability to pay off its short term liabilities and also to measure of how quickly a firm is able to convert its assets into cash.
Market Value Ratio
Stock A Stock B
ROE = 15% 9%
Price to book ratio (P/B) = 1.65 1.38
Earning yield ( Earnings/ Price ratio) = E = ROE
P P/B
= 15 = 9
1.65 1.38
= 9.09 = 6.522
Hence, According to earning yield , Stock A is better to buy because of having a higher earning yield rate .
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