Question

Ratios Calculated

Year 1 Year 2 Year 3
Price-to-cash-flow 6.00 7.80 8.74
Inventory turnover 12.00 14.40 16.13
Debt-to-equity 0.30 0.32 0.38

Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply.

A. An improvement in the inventory turnover ratio could likely be explained by the new sales-forecasting strategies that led to better inventory management.
B. The market value of Cute Camel Woodcraft Company's common shares declined over the three years.
C. Cute Camel Woodcraft Company's ability to meet its debt obligations has worsened since its debt-to-equity ratio increased from 0.30 to 0.38.
D. The company's creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time.

Answer 1

The most commonly used base for a common size Balance Sheet is

Total Assets

Net Sales is used for Common sized Income Statement

The correct statements are:

An improvement in Inventory Turnover ratio could likely be explained by new technology that led to better inventory management

Ability to meet debt obligations has worsened as the ratio has increased

Increase in Debt equity ratio does not mean decline in credit worthiness

Market value has not decreased as the price to cash flow ratio has increased