Question 5 Financial statement analysis and ratios 1 The following ratios were provided for Laura Ltd: RATIOS 2019 2020 2020 Industry Average Quick Ratio 1.2:1 0.4:1 1.1:1 Current Ratio 1.8:1 0.9:1 1.8:1 Inventory Turnover 16 times 12 times 18 times Average Collection Period of Receivables 30 days 60 days 20 days Debt Ratio 40% 60% 30%
Question 5 Financial statement analysis and ratios 1 The following ratios were provided for Laura Ltd: RATIOS 2019 2020 2020 Industry Average Quick Ratio 1.2:1 0.4:1 1.1:1 Current Ratio 1.8:1 0.9:1 1.8:1 Inventory Turnover 16 times 12 times 18 times Average Collection Period of Receivables 30 days 60 days 20 days Debt Ratio 40% 60% 30%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 5
Financial statement analysis and ratios 1
The following ratios were provided for Laura Ltd:
RATIOS
2019
2020
2020 Industry Average
Quick Ratio
1.2:1
0.4:1
1.1:1
Current Ratio
1.8:1
0.9:1
1.8:1
Inventory Turnover
16 times
12 times
18 times
Average Collection Period of Receivables
30 days
60 days
20 days
Debt Ratio
40%
60%
30%
Profit Margin
20%
10%
25%
Return on Assets
16%
8%
20%
Note: Company credit payment terms for customers is 30 days.
Required
Given the above ratios, comment on the performance of Laura Ltd in relation to profitability, liquidity and
financial stability in 2020. Include any possible problems and possible causes thereof.
1. Profitability (Profit Margin and Return on Total Assets)
2. Liquidity (Quick, Current, Inventory Turnover & Average Collection Period of Receivables)
3. Financial Stability/Solvency (Debt Ratio)
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