The Balance Sheet

Financial Ratios

The purpose of this SLP is to apply ratio analysis to assess the financial health of ABC Company. Use the balance sheet presented in the case during this module to compute solvency and efficiency ratios. Compute three ratios based on balance sheet accounts for which you have sufficient information.

Assume that ABC Company is a small specialty retail store. Ratios are relevant when assessed over time or across companies. IBIS is a comprehensive resource containing market research and statistics, which can be used to compare ABC Company to the industry and leaders in the industry.

1. Show the computation of the three ratios.

2. Comment of the purpose and information conveyed by each ratio.

3. What did you learn about ABC Company by reviewing the three ratios?

4. What is your conclusion about the solvency and efficiency of the company?

5. How successful is ABC Company relative to the industry average and leaders in the small specialty retail store industry? Write two paragraphs or more. Include ratios found in the IBIS database to support your conclusion.