The Game Of Financial Ratios (Best Combination) Case Study Solution
Solvency ratios
Solvency ratios are concerned with a longer-term ability to pay off longer term debts.This ratio is used by lenders while evaluating the company's financial position to pay debts on time.A higher ratio percentage means the company is in a position to cover its liabilities. It includes ratio,such as: debt to equity ratio.
Debt to equity ratio= debt/equity.
Turnover ratios
The turnover ratios are used to determine the efficiency of the company to find out whether the company uses its assets efficiently in order to earn profit. These ratios includefixed asset turnover ratio and accounts receivable turnover ratio.
Fixed asset turnover ratio= net sales/ fixed assets.
Accounts receivable turnover ratio= net credit sales/ average accounts receivable.
Earnings ratios
Earnings ratios include return on net worth ratio and other ratios as well. This ratio indicates whether the company used its equity generated from shareholders efficiently or not. It is calculated as:
Net worth ratio = net income/ shareholder’s equity
Conclusion
On the basis of financial ratio analysis and evaluation of dynamics of ten industries; relevant combinations have been identified. Financial data provided in Exhibit 1, reflects best combination with the industries in Exhibit 2 as A represents pharmaceutical industry, B is oil and gas, C is banking, D is information technology, E is telecommunication, F is cement, G is hospitality, H is retail food industry, I is heavy engineering and J is automobiles.(Gupta, 2017).....................................
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