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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

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).

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

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