Chapter 4, Problem 25SP

a.

Summary Introduction

To determine: The liquidity position of C Corporation, comparison of liquidity position with peers and the changes in liquidity position over the time.

Ratio Analysis: Ratio is used to compare two arithmetical figures. In case of the ratio analysis of the company, the financial ratios are calculated. The financial ratios examines the performance of the company and are used in comparing with other same business. It indicates relationship of two or more parts of financial statements.

Liquidity Position: The liquidity position of the company is indicated by liquidity ratios, which gives the idea of whether the company has the ability to pay back its liabilities, which has less than one year maturity.

b.

Summary Introduction

To determine: The Assets management position of C Corporation, comparison of assets management position with peers and the changes in assets management position over the time.

Assets Management Position: The assets management position of the company is indicated by assets management ratios which give idea how well the company is using its assets.

c.

Summary Introduction

To determine: The debt management position of C Corporation, comparison of debt management position with peers and the changes in debt management position over the time.

Debt Management Position: Debt management position is indicated by the debt management ratios which give an idea how the company finances its assets as well as the capability to pay back its long-term debt.

d.

Summary Introduction

To determine: The profitability ratio of C Corporation, compare it with peers and the change in the profitability of the company over the time.

Profitability Ratios: These ratios give an idea whether the company is able to operate profitably and is efficient in using its assets.

e.

Summary Introduction

To determine: The market value ratios, comparison of ratios with peers and changes in market values over the time.

Market Value Ratios: The market value ratios give idea about the view of investors towards the company and company’s future scenario.

f.

Summary Introduction

To calculate: The ROE of the C company as well industry average ROE using DuPont equation and way of comparing of Company’s financial position with industry’s average numbers.

Return on Equity (ROE): Return on equity is the return from the equity. It is the ratio of net income and shareholders’ equity. This ratio measures the performance of the company and tells how well the company is performing. This ratio is used to compare own firm with competitors.

Du Pont Equation: Among all ratios, return on equity is very common. It shows the value of the firm. Improvement in the ROE is considered as valued addition to the firm. ROE can be linked with other ratios. Analysis of such ratios will indicate proper reason for change in ROE. The combination is known as Du Pont equation which is shown below:

g.

Summary Introduction

To identify: The changes in the ratios, if the company has started cost-cutting measures, which allowed it to hold lower level of inventory and substantially deceased the cost of goods sold.