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1. Suppose, you have recently inherited a stock portfolio from your uncle. Wishing to learn more about the companies in which he is now invested,
1. Suppose, you have recently inherited a stock portfolio from your uncle. Wishing to learn more about the companies in which he is now invested, you have performed a ratio analysis on each one and decides to compare them to one another. Some of those ratios are listed below. Ratio Bongos Spinning Beximco Pharma Square Pharma Tallu's Spinning Current ratio 1.20 4 1.10 Quick ratio 0.89 5.2 3.28 0.70 Debt Ratio 60% 0 40% 55% Net profit margin 5.8% 31% 22% 4.5% ROA 9% 15% 16% 7% ROE 7% 12% 12.25% 5% Assuming that your uncle was a wise investor who assembled the portfolio with care, you identified the wide differences in these ratios confusing. a. What problems might you encounter in comparing these companies to one another on the basis of their ratios? b. Why might the current and quick ratios for the Pharmaceutical and the Textile stock be so much different? c. Why might it be all right for the Textile companies to carry a large amount of debt? d. Analyze the whole scenario and discuss your understanding
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