Question

Select all of the examples of a scenario in which the firm is demonstrating financial weakness.

a. An ROA of 0.7 when the industry average is 1.4.
b. A current ratio of 0.5.
c. An ROE of 1.4 when the industry average is 1.15.
d. A quick ratio above the industry average of 0.9.
e. A fixed asset ratio of 0.6 when the industry average is 1.1.
f. A debt capital ratio of 0.7 when the industry average is 0.15

Answer 1

a. An ROA of 0.7 when the industry average is 1.4

b. A current ratio of 0.5.

f. A debt capital ratio of 0.7 when the industry average is 0.15

e. A fixed asset ratio of 0.6 when the industry average is 1.1

Step-by-step explanation:

A return on the asset ration may be a profitable ratio that indicates the efficiency of the usage of the assets in any business. When the ratio is higher it is better. A lower ratio shows the financial weakness of a firm for utilizing the assets.

A 0.7 debt ratio that is higher than the industry average represents a higher leverage and the higher solvency risk.

The 0.6 fixed asset ratio shows a lower utilization of the fixed assets in the generation of the turnover. Hence, it shows a financial weakness.

Current ratio represents the coverage of the current assets for the meeting of a short term obligations. The ratio is desired to be 2.

Ratio of 0.5 shows a current asset that is not sufficient for meeting the current liabilities.