QUESTION FOUR

You have been provided with the following information for a small private company, Formosa Pty Ltd, whose competitors are predominately large public companies.

	2017	2018	2019	Industry average 2019
Net profit margin	8.2%	7.5%	6.8%	8.0%
Return on equity	13.1%	12.3%	11.1%	13.5%
Current ratio	1.8	2.1	2.4	2.0
Quick ratio	1.2	1.1	0.9	1.2
Receivables turnover	12.2	12.6	13.0	13.0
Inventory turnover	4.7	4.5	4.2	4.8

REQUIRED:

1. Comment on the trend of each of the six ratios for Formosa Pty Ltd in relation to the companys profitability and liquidity. For each ratio, describe what the ratio measures. (word limit 500).

Explain the difference between liquidity and solvency when analyzing a companys financial statements. (word limit 150)