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ACST 252 Tutorial 2

2-4. For a financial ratio analysis, a firm would like to project its success and
results. This is the encourage investors to invest in to the firm. Thus ratios like
the liquidity ratio would be high and debt ratio would be low. For prospective
shareholders, ratios are one factor in determining whether or not to invest in a
company. It should not be the only reason for investment as there would be
different factors affecting the ratios which could make it look good or look worse
than it is. Creditors want to see the debt ratio low in order to get the equity owed
back. Management aims to provide the best ratios in order to bolster the firm
and their own titles.
Average receivable period management/competitors
Average payable period Creditor
Inventory turnover rate- Management

2-9. More information that can be provided on the average receivable and
payable periods could be the average purchases and also sales of the company.
These figures in particular the average purchases figure is hard to find as they
arent published in the financial report.
2-17. Using all the ratios I would use the current, acid test (quick test), Average
payable and receivable tests in the short run to determine liquidity of the firm
taking into account whether its a service or manufacturing firm. I would then
analyse the inventory turnover ratio, total asset turnover and times interest
earnt ratio.
I would then do an overall analysis using either the dupoint system (p. 69) or
summary analysis of a large number of ratios.
2-21.