Final answer:
Financial performance, position, and risk of companies are analyzed using key ratios like current ratio, total debt to equity, and return on equity. These ratios provide insights into a company's ability to manage debt, generate returns, and maintain liquidity.
Step-by-step explanation:
To assess a company's financial performance, position, and risk, we need to compute several key liquidity and return on investment ratios. These ratios include the current ratio, which measures a company's ability to pay short-term obligations; total debt to equity, indicating the proportion of company financing that comes from creditors and investors; and long-term debt to equity, a gauge of the proportion of long-term debt used to finance the company's assets relative to the amount contributed by shareholders.
The times interest earned ratio shows how easily a company can pay interest expenses on outstanding debt. The return on assets (ROA) measures how efficiently a company uses its assets to generate profit, while the return on equity (ROE) assesses how effectively a company uses investors' capital to generate returns.
To understand the investment characteristics of the companies, the expected rate of return shows potential future gains, and liquidity reflects the ease with which assets can be converted into cash. Exploring the tradeoffs between return and risk is crucial, as higher expected returns typically come with increased risk. By contrasting these ratios for the three companies, one can determine their financial stability, efficiency in using resources, and their ability to manage debt and generate returns for investors.