Problem 2:

Corporations usually compare their financial statuses by calculating the financial ratios, and they compare the various financial ratios between past and present years, and also they compare their financial ratios for the present year with the industry best practices, known as industry standards.

For the following financial ratios:

a)Current ratio

b)Quick ratio

c)Average collection period

d)Accounts receivable turnover

e)Inventory turnover

f)Fixed assets turnover

g)Total assets turnover

h)Debt ratio

i)Debt to equity

j)Times interest earned

k)Gross profit margin

l)Net profit margin

m)Return on assets

n)Return on equity

A.You are requested to determine whether it is better for the corporation to have a higher or a lower ratio result in comparison with industry standards

B.What does it mean to have a higher ratio in comparison to industry standards for each of these financial ratios?

C.What does it mean to have a lower ratio in comparison to industry standards for each of these financial ratios?

D.Give your overall analysis based on the below corporation ratios and their corresponding industry standards (on the next page):

Corporation ratioIndustry standard (average) ratio

Current ratio1.651.90

Quick ratio1.552.25

Average collection period6248

Accounts receivable turnover6.305.90

Inventory turnover6.555.85

Fixed assets turnover5.252.85

Total assets turnover0.950.65

Debt ratio0.750.45

Debt to equity0.951.25

Times interest earned2.102.65

Gross profit margin30.7538.25

Net profit margin-11.25-2.75

Return on assets-5.25-1.85

Return on equity-20.50-2.15

Good Luck!!!!