The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.In terms of the ratios provided, what conclusion(s) can be drawn regarding the company's use of financial leverage during the 2023-2025 period?Using the ratios provided, what conclusion(s) can be drawn regarding the company's net investment in plant and equipment?O Word(s)O Word(s)O Word(s) Picasso Company is a wholesale distributor of packaging equipment and supplies. The company's sales have averaged about $900,000annually for the 3-year period 2023-2025. The firm's total assets at the end of 2025 amounted to $850,000.The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company'soperations for the past 3 years. This report will be presented to the board of directors at their next meeting.In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which canassist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated thefollowing ratios for the 3-year period 2023-2025.Current ratioAcid-test (quick) ratioAccounts receivable turnoverInventory turnoverDebts to assets ratioLong-term debt to assets ratioSales to fixed assets (fixed asset turnover)Sales as a percent of 2023 salesGross margin percentageNet income to salesReturn on assetsReturn on common stockholders' equity20231.801.048.754.9151.0 %31.0 %1.581.0036.0 %6.9 %7.7 %13.6 %20241.890.997.714.3246.0 %27.0 %1.691.0335.1 %7.0 %7.7 %13.1 %20251.960.876.423.4241.0 %24.0 %1.791.0734.6 %7.2 %7.8 %12.7 %In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data todetermine if the ratios themselves reveal any significant trends over the 3-year period.

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Description: The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.In terms of the ratios provided, what conclusion(s) can b

The current ratio represents a liquidity measure that determines the ability of the firm to pay off…

Business

Finance

The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend. In terms of the ratios provided, what conclusion(s) can be drawn regarding the company's use of financial leverage during the 2023-2025 period? Using the ratios provided, what conclusion(s) can be drawn regarding the company's net investment in plant and equipment? OWord(s) Oword(s)

The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend. In terms of the ratios provided, what conclusion(s) can be drawn regarding the company's use of financial leverage during the 2023-2025 period? Using the ratios provided, what conclusion(s) can be drawn regarding the company's net investment in plant and equipment? OWord(s) Oword(s)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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Concept explainers

Financial Ratios

A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.

Return on Equity

The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.

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Question

The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.
In terms of the ratios provided, what conclusion(s) can be drawn regarding the company's use of financial leverage during the 2023-2025 period?
Using the ratios provided, what conclusion(s) can be drawn regarding the company's net investment in plant and equipment?
O Word(s)
O Word(s)
O Word(s)

Picasso Company is a wholesale distributor of packaging equipment and supplies. The company's sales have averaged about $900,000
annually for the 3-year period 2023-2025. The firm's total assets at the end of 2025 amounted to $850,000.
The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company's
operations for the past 3 years. This report will be presented to the board of directors at their next meeting.
In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can
assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the
following ratios for the 3-year period 2023-2025.
Current ratio
Acid-test (quick) ratio
Accounts receivable turnover
Inventory turnover
Debts to assets ratio
Long-term debt to assets ratio
Sales to fixed assets (fixed asset turnover)
Sales as a percent of 2023 sales
Gross margin percentage
Net income to sales
Return on assets
Return on common stockholders' equity
2023
1.80
1.04
8.75
4.91
51.0 %
31.0 %
1.58
1.00
36.0 %
6.9 %
7.7 %
13.6 %
2024
1.89
0.99
7.71
4.32
46.0 %
27.0 %
1.69
1.03
35.1 %
7.0 %
7.7 %
13.1 %
2025
1.96
0.87
6.42
3.42
41.0 %
24.0 %
1.79
1.07
34.6 %
7.2 %
7.8 %
12.7 %
In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to
determine if the ratios themselves reveal any significant trends over the 3-year period.

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