COMPARING FINANCIAL RATIOS. Presented below are selected ratios for four firms: Caterpillar (a heavy-equipment manufacturer), Gannett (a newspaper pub- lisher), Kellogg (a food manufacturer), and Winn-Dixie (a grocery chain).

REQUIRED:
1. Why is there little difference among the four firms in the current ratio?
2. Why would the turnover ratios vary so much among the four firms?
3. Why is the return on equity ratio larger than the return on asset ratio for all four firms?
4. Can the large differences in the return on equity ratios exist over long periods of time?

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CATERPILLAR GANNETT KELLOGG WINN-DIXIE SHORT-TERM LIQUIDITY Current ratio 1.3 1.7 1.0 1.6 DEBT-MANAGEMENT RATIO Long-term debt to equity 1.81 .45 .30 .09 OPERATING RATIOS Receivables 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