Reference no: EM133307297

Question 1. Why might it be possible for a company to make large operating profits, yet still be unable to meet debt payments when due? What financial ratios might be employed to detect such a condition?

Question 2. Which firm is more profitable - Firm A with a total asset turnover of 10.0 and a net profit margin of 2 percent, or Firm B with a total asset turnover of 2.0 and a net profit margin of 10 percent? Provide examples of both types of firm.

Question 3. Cordillera Carson Company has the following balance sheet and income statement for 20X2 (in thousands): Part 3 Tools of Financial Analysis and Planning 162 BALANCE SHEET INCOME STATEMENT Cash $ 400 Net sales (all credit) $12,680 Accounts receivable 1,300 Cost of goods sold 8,930 Inventories 2,100 Gross profit $ 3,750 Current assets $3,800 Selling, general, and Net fixed assets 3,320 administration expenses 2,230 Total assets $7,120 Interest expense 460 Profit before taxes $ 1,060 Accounts payable $ 320 Taxes 390 Accruals 260 Profit after taxes $ 670 Short-term loans 1,100 Current liabilities $1,680 Long-term debt 2,000 Net worth 3,440 Total liabilities and net worth $7,120 Notes: (i) current period's depreciation is $480; (ii) ending inventory for 20X1 was $1,800. On the basis of this information, compute (a) the current ratio, (b) the acid-test ratio, (c) the average collection period, (d) the inventory turnover ratio, (e) the debt-to-net-worth ratio, (f ) the long-term debt-to-total-capitalization ratio, (g) the gross profit margin, (h) the net profit margin, and (i) the return on equity.