An analyst observes the following data for two companies:
|
Company A |
Company B |
|
|
Revenue |
$4,500 |
$6,000 |
|
Net income |
$50 |
$1,000 |
|
Current assets |
$40,000 |
$60,000 |
|
Total assets |
$100,000 |
$700,000 |
|
Current liabilities |
$10,000 |
$50,000 |
|
Total debt |
$60,000 |
$150,000 |
|
shareholders equity |
$30,000 |
$500,000 |
Which of the following choicesbestdescribes reasonable conclusions that the analyst might make about the two companies’ ability to pay their current and long-term obligations?
A. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, but Company B is more solvent, as indicated by its lower debt-to-equity ratio.
B. Company A’s current ratio of 0.25 indicates it is less liquid than Company B, whose current ratio is 0.83, and Company A is also less solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30 percent.
C. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only 1.2, and Company A is also more solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30 percent.
The following information relates to Questions 12 through 15.
The data in Exhibit A appear in the five-year summary of a major international company. A business combination with another major manufacturer took place in FY13.
|
FY10 |
FYI 1 |
FY12 |
FY13 |
FY14 |
|
|
Financial mcmcn ES Income statements |
GBP m |
GBP m |
GBP m |
GBP in |
GBP m |
|
Revenue |
4.390 |
3.624 |
3.717 |
8.167 |
11,366 |
|
Profit before interest and taxation (EDIT) |
844 |
700 |
704 |
933 |
1.579 |
|
Net interest payable |
—80 |
—54 |
—98 |
—163 |
—188 |
|
Taxation |
—186 |
—195 |
—208 |
—349 |
—579 |
|
Minorities |
—94 |
—99 |
—105 |
—125 |
—167 |
|
Profit for the year |
484 |
352 |
293 |
2% |
645 |
|
Balance sheets |
|||||
|
Fixcd asses |
3.510 |
3.667 |
4,758 |
10.431 |
11.483 |
|
Current asset investments. cash at bank and in hand |
316 |
218 |
290 |
561 |
682 |
|
Other current assets |
558 |
514 |
643 |
1,258 |
1,634 |
|
Total assets |
4,384 |
4,399 |
5,691 |
12,250 |
13.799 |
|
!mesa bearing debt (long term) |
—602 |
—1,053 |
—1,535 |
—3,523 |
—3,707 |
|
Other aeditors and provisions (current) |
—1,223 |
—1,054 |
—1,102 |
—2,377 |
—3,108 |
|
Total liabilities |
—1,825 |
—2,107 |
—2,637 |
—5,900 |
—6.815 |
|
Net assets |
2,559 |
2,292 |
3.054 |
6.350 |
6.984 |
|
Shareholders fiends |
2,161 |
2.006 |
2,309 |
5.572 |
6.165 |
|
Equity minority interests |
398 |
2% |
745 |
778 |
819 |
|
Capital employed |
2,559 |
2,292 |
3,054 |
6,350 |
6,984 |
|
Cash flow |
|||||
|
Working capital movements |
—53 |
5 |
71 |
85 |
107 |
|
Net cash inflow from operating activities |
864 |
859 |
975 |
1,568 |
2,292 |