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Ratio comparisions Robert Arias recently inherited a stock portfolio from his uncle.wishing to learn more about the companies that he is now invested in,Robert performs a ratio analysis on each one and decides to compare them to each other. Some of his ratios are listed below

Island electric utility- Burger heaven-Fink software-Roland motors

Current ratio 1.10 1.3 6.8 4.5

quick ratio 0.90 0.82 5.2 3.7

debt ratio 68.2% 46.1% 0% 34.9%

profit margin 6.2% 14.3% 28.5% 8.4%

Assuming that his uncle was a wise investor who assembled the portfolio with care, Robert finds the wide differences in these ratios him out

a. What problems might Robert encounter in comparing these companies to one another on the basis of their ratios?

b. Why might the current and quick ratios for the electric utility and the fast food stock be so much lower than the same ratio for the other company?

c. Why might it be all right for the electric utility to carry a large amount of debt,but the same is not true for the software company?

d. Why wouldn't investors invest all of their money in software companies instead of less profitable companies?(focus on risk and reward)

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M941560

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