What is liquidity, and what is the rationale for its measurement?

What are the differences among a firm$$s gross profit margin, operating profit margin, and net profit margin?

What information do the price$/$earnings ratio and the price$/$book ratio give us about the firm and its investors?

$4-1.($Evaluating liquidity$)$ Aylward, Inc. currently has $$2,145,000$ in current assets and $$858,000$ in current liabilities. The company$$s managers want to increase the firm$$s inventory, which will be financed by a short$-$term note with the bank. What level of inventories can the firm carry without its current ratio falling below $2\mathrm{.}0?$

$4-6.($Ratio analysis$)$ The balance sheet and income statement for the A$.$ Thiel Mfg$.$ Company are as follows:

BALANCE SHEET $($$$000)$

Cash

$ $500$

Accounts Receivables

$ $2,000$

Inventories

$ $1,000$

Current Assets

$ $3,500$

Net Fixed Assets

$ $4,500$

Total Assets

$ $8,000$

Accounts Payable

$ $1,100$

Accrued Liabilities

$ $600$

Short$-$term notes payable

$ $300$

Current Liabilities

$ $2,000$

Long$-$term debt

$ $2,000$

Shareholders$$ Equity

$ $4,000$

Total Liabilities and Shareholders$$ Equity

$ $8,000$

INCOME STATEMENT $($$$000)$

Sales

$ $8,000$

Cost of Revenue

$ $(3,300)$

Gross Profit

$

Operating Expenses $($includes $$500$ Depreciation

$ $(3,000)$

Operating Profits

$ $1,700$

Interest Expense

$ $(367)$

Earnings before taxes

$ $1,333$

Income Taxes $(21\%)$

$ $(280)$

Net Income

$ $1,053$

Calculate:

Current Ratio

Interest Coverage

Inventory Turnover

Operating profit margin

Operating return on Assets

Days in Inventory

Return on Equity

$4-1$ $$429,000$

$4-6$

$1\mathrm{.}75$

$4\mathrm{.}63$

$3\mathrm{.}3$

$\mathrm{.}21$ or $21\%$

$\mathrm{.}21$ or $21\%$

$110\mathrm{.}61$ days

$\mathrm{.}26$ or $26\%$