Question

Based on the profit and loss accounts and balance sheets provided, which of the following statements is true?

a. Arsenal has a higher current ratio than Manchester United.
b. Manchester United has a higher debt-to-equity ratio than Arsenal.
c. Arsenal has a higher net profit margin than Manchester United.
d. Manchester United has a higher return on assets than Arsenal.

Answer 1

Assets on a bank's balance sheet include loans and investments, not just cash in the vault. Loan values in the secondary market fluctuate based on borrower reliability and shifts in economic interest rates.

Step-by-step explanation:

The money listed under assets on a bank's balance sheet may not actually be in the bank because assets also include loans made to customers and investments made by the bank, which means this money is out circulating in the economy and not physically present in the bank's vaults. When contemplating the purchase of loans in the secondary market, an investor would likely pay less for a loan if the borrower has been consistently late on payments due to the higher risk of default. Conversely, they might pay more if the borrower's financial situation has improved, as evidenced by a recent declaration of high profits, or if overall economic interest rates have fallen since the loan was issued, making the loan's existing rate more favorable.