Comparing Financial Ratios}

Presented below are selected ratios for four firms. Mirbeau is a heavy equipment manufacturer, Rilke is a newspaper publisher, Cervantes is a food manufacturer, and Dickens is a grocery chain.

Required:
1. Which firm has the weakest current ratio?
2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms.
3. CONCEPTUAL CONNECTION Explain why the return on equity ratio is larger than the return on asset ratio for all four firms.
4. CONCEPTUAL CONNECTION Discuss whether the large differences in the return on equity ratios can exist over long periods of time.
\section*{OBJECTIVE 4 Problem

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Mirbeau Rilke Cervantes Dickens Short-term liquidity ratio Current ratio 1.3 1.7 1.0 1.6 Debt management ratio Debt-to-equity 1.81 0.45 0.30 0.25 Asset efficiency ratios Accounts receivable turnover 4.66 8.28 11.92 116.15 Inventory turnover 6.26 40.26 7.29 8.43 Profitability ratios Operating income 12.6% 25.4% 21.2% 3.8% Net income 5.9 10.9 10.8 1.9 Return on assets 4.7 10.6 16.8 10.3 Return on equity 36.0 22.6 38.0 21.2