Comparing Financial Ratios}

Presented below are selected ratios for four firms. Rosemont is a distiller, Adler is a jewellery retailer, Menzel is an airline, and Gallagher is a hotel chain.

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1. CONCEPTUAL CONNECTION Explain why the debt-to-equity ratio is so much higher for the airline and hotel chain than it is for the distiller and jewellery retailer.
2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms.
3. CONCEPTUAL CONNECTION Explain why the return on equity for the airline and hotel chain is higher than for the distiller and jewellery retailer when their operating income and net income percentages are considerably smaller.
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Rosemont Adler Menzel Gallagher Short-term liquidity ratio Current ratio 1.5 3.5 0.9 1.4 Debt management ratio Debt-to-equity 0.24 0.20 2.62 1.09 Asset efficiency ratios Accounts receivable turnover 7.66 17.07 19.72 11.09 Inventory turnover 2.30 0.95 31.43 7.24 Profitability ratios Operating income 17.7% 15.5% 4.2% 9.2% Net income 13.1 9.6 2.2 5.4 Return on assets 11.9 8.6 1.8 7.9 Return on equity 23.7 14.9 49.2 34.5