Locate a publicly traded U.S. company of your choice. Then, calculate the following ratios for the company for 2012 and 2013:
•Liquidity Ratios ◦Current ratio [current assets / current liabilities]
◦Quick ratio [(current assets – inventory) / current liabilities]
•Asset Turnover Ratios ◦Collection period [accounts receivable / average daily sales]
◦Inventory turnover [cost of goods sold / ending inventory]
◦Fixed asset turnover [sales / net fixed assets]
•Financial Leverage Ratios ◦Debt-to-asset ratio [total liabilities / total assets]
◦Debt-to-equity ratio [total liabilities / total stockholders’ equity]
◦Times-interest-earned (TIE) ratio [EBIT / interest]
•Profitability Ratios ◦Net profit margin [net income / sales]
◦Return on assets (ROA) [net income / total assets]
◦Return on equity (ROE) [net income / total stockholders’ equity]
•Market-Based Ratios ◦Price-to-earnings (P/E) ratio [stock price / earnings per share]
◦Price-to-book (P/B) ratio [market value of common stock / total stockholders’ equity]
You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2012 to 2013, why do you think that it increased? Is it a good or bad sign that the ratio increased? Please explain.
If a ratio decreased from 2012 to 2013, why do you think that it decreased? Is it a good or bad sign that the ratio decreased? Please explain.
If a ratio was unchanged from 2012 to 2013, why do you think that it was unchanged? Is it a good or bad sign that the ratio was unchanged? Please explain.
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