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Hector Company's year-end balance sheets for the past two years are as follows. The combarative income statements are as follows: Required: a) Compute the acid-test
Hector Company's year-end balance sheets for the past two years are as follows. The combarative income statements are as follows: Required: a) Compute the acid-test ratio, days' sales uncollected, times interest earned, debt-to-equity ratio for both years. Round the answers to two decimals. ( 8 marks) b) Comment on your results in part a). Specifically, comment on each ratio based on the increase/decrease between two years, and explain what the increase/decrease means or implies. (6 marks) c) The year-end share price is $20 and $15 for the current and previous year-end, respectively. What is Hector's price-earnings ratio? Hector's competitor has a price-earnings ratio of 9.7. Is Hectors' or its main competitor's price-earnings ratio higher? What does a higher priceearnings ratio mean? ( 3 marks) d) (i) Which group(s) of financial ratios (refer to the 4 building blocks of financial statement analysis) would you use to evaluate the CEO's performance? (ii) List at least two relevant ratios that are useful when conducting the evaluation. ( 3 marks)
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