Chapter 12, Problem 91PSB

Comparing Financial Ratios

Presented below are selected ratios for four firms. Tweeter is a distiller. Clinton is a jewelry retailer, Smith is an airline, and Orlando is a hotel chain.

Required:

1. CONCEPTUAL CONNECTION Explain why the long-term debt to equity ratio is so much higher for the airline and hotel chain than it is for the distiller and jewelry retailer.

2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms.

3. CONCEPTUAL CONNECTION Explain why the return on equity for the airline and hotel chain is higher than for the distiller and jewelry retailer when their operating income and net income percentages are considerably smaller.