Question 1:

a. For each of the following ratios determine if an increasing value indicates a positive or negative trend:

Current Ratio (aka Working Capital)

Acid Test

Inventory Turnover

Average Collection Period

Average Payment Period

Total Asset Turnover

Average Age of Inventory

Debt to Total Assets

Debt to Equity

Times Interest Earned

Fixed Charge Coverage

Gross Profit Margin (GPM)

Operating Profit Margin

Net Profit Margin (NPM)

Earnings Per Share (EPS)

Return on Total Assets (ROA)

Return on Equity (ROE)

Price to Earnings Ratio (PE Ratio)

Book Value per Share

Market/Book Ratio

b. The inventory turnover ratio for the Ajax Manufacturing Company was determined to be 6. What does a turnover of 6 mean?

c. If a company has a current ratio of less than one, what kinds of problems are suggested by this extremely low ratio:

d. What financial problems are suggested by a high debt/equity ratio?

e. The management of the Ajax Manufacturing Company realizes it is over stocked in finished goods inventory. What ratio could reveal this fact? In addition, what other tool could as well, especially as compared to previous years?

f. The management of the Ajax Manufacturing Company realizes that it has a problem collecting accounts receivable. Customers for the most part are paying but typically been paying a month late. What ratio could reveal this fact?

g. The management of the Ajax Manufacturing Company is concerned that the market value of its stock has declined in the past several months. What type of ratios might indicate why this has happened?