3-2 Vigo Vacations has an equity multiplier of 2.5.

The companys assets are financed with some

combination of long-term debt and common equity. What is the companys debt ratio
!olution"

Given, equity multiplier = 2.5
We know that,
Debt ratio = 1- (1/equity multiplier
= 1- (1/2.5
= !."!
"!#

3-3 Winston Washerss stoc# price is $%5 per share. Winston has $&'billion in total assets. (ts
balance sheet shows $&billion in current liabilities) $3billion in long-term debt) and $*billion in common
equity. (t has +'' million shares of common stoc# outstanding. What is Winstons mar#et,boo# ratio
!olution"
Given,
$to%k pri%e = &'5 per (hare
)otal a((et( = &1!billion
*urrent liabilitie( = &1billion
+on, term -ebt = &.billion
*ommon equity = &"billion
/o. o0 (hare( out(tan-in, = 1!! million (1! billion
2arket/book ratio = 3
/ow,
4ook value per (hare = %ommon equity/(hare( out(tan-in,
= "/1!
= !.'5

We know that,
2arket/book ratio = market pri%e per (hare/ book value per (hare
= '5/'.5
= 1!
3-- . company has an /0! of $&.5') a cash flow per share of $3.'') and a price,cash flow ratio of
+.'. What is its 0,/ ratio
!olution"
Given,
56$ = &1.5
*a(h 0low per (hare = &.
6ri%e/ %a(h 0low ratio = 1.!
6/5 ratio =3
/ow,
6ri%e/%a(h 0low ratio = pri%e per (hare/ %a(h 0low per (hare
1 = pri%e per (hare/ .
6ri%e per (hare = 27
$o,
6/5 ratio = 6ri%e per (hare/56$
= 27/1.5
= 1"
.-2
8inan%ial ratio analy(i( help( equity inve(tor( to know about their inve(tment( i( earnin, (ome return or not. 9t
help( them to make (ure whether %ompany earnin, hi,her or lower return %ompare- to previou( year, in-u(try
avera,e an- the bi,,e(t %ompetitor( within the (ame in-u(try3 :n the other han- 0inan%ial ratio analy(i( help(
mana,er( to keep up with 0inan%ial ,oal( an- help( in pre-i%tin, earnin,, -ivi-en-( an- 8*8.
9t a((i(t( $hort term %re-itor( to know the ability o0 %ompany to pay their (hort term obli,ation. *al%ulation o0
*urrent ratio, re%eivable turnover an- a%%ount( payable are (ome o0 the ratio( that help( (hort term %re-itor( to
analy;e %ompany<( %re-it hi(tory.
9t help( lon, term %re-itor( to know ability o0 %ompany to meet intere(t e=pen(e( an- lon, term obli,ation( on
time. )ime( intere(t earne- ratio, -ebt to total a((et( turnover ratio, -ebt to (harehol-er( equity ratio are (ome
o0 the ratio( that are help0ul 0or lon, term %re-itor(.

.-.
)he %han,e( e=plain that the %ompany wa( not bein, able mana,e their inventorie(. Due to the in%rea(e in
inventory both %urrent a((et( an- %urrent ratio in%rea(e- wherea( total a((et( turnover -e%rea(e-. $in%e
inventory -oe( not a00e%t qui%k ratio an- 0i=e- a((et( turnover, the(e ratio( remain %on(tant. *ompany<( (ale(
have remaine- %on(tant. )hi( (ituation (how( that %ompany i( lo(in, their money.

.-7
6ro0it mar,in( an- turnover ratio( vary 0rom one in-u(try to another. >ny bu(ine(( with hi,her pro0it mar,in
have lower %o(t o0 (ale( an- hen%e hi,h pro0it while bu(ine(( with lower pro0it mar,in have hi,her %o(t o0 (ale(.
?en%e, bu(ine(( with low mar,in nee-( to have hi,h volume to (ale( to make up 0or the low mar,in. )urnover
ratio( (how how many time( a year %ompany i( repla%in, their inventorie( or %olle%tin, their -ebtor(. *ompany
with hi,her turnover re0le%t( that the %ompany i( pro-u%in, an- (ellin, their pro-u%t( qui%kly where a( lower
turnover ratio (how( that the %ompany i( pro-u%in, an- (ellin, it( pro-u%t( very late.
Gro%ery %hain( like $a0eway are bu(ine(( havin, lower pro0it mar,in, hi,h turnover ratio an- hen%e hi,her
volume o0 bu(ine(( tran(a%tion where a( $teel %ompany i( a bu(ine(( havin, hi,her pro0it mar,in, low turnover
ratio an- hen%e lower volume o0 bu(ine(( tran(a%tion(.