Problem #4 Ratios

Mr. Low Life was considering buying stock in Its All Wonderful Corporation. To do so he computed several ratios as listed below:

a) Current Ratio

b) Inventory Turnover Ratio

c) Profit Margin Ratio

d) Debt to Equity Ratio

e) Free Cash Flow Ratio

How would the above ratios be affected if:

Equipment was purchased with cash.

Additional sales were made.

Administrative expenses increased

AP was increased

The company expected to be sued over a warranty claim.

Required: Give the effect of each transaction on the ratios given. Note that you will have 5 answers for each ratio.