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X有限公司 reported a current ratio of 2.5:1 in Year 1 and 1.8:1 in Year 2. What does this change indicate about the company's liquidity position, and what further information would you need to make a more informed assessment?
X有限公司 reported a current ratio of 2.5:1 in Year 1 and 1.8:1 in Year 2. What does this change indicate about the company's liquidity position, and what further information would you need to make a more informed assessment?
The decrease in the current ratio indicates a deterioration in the company's liquidity position, suggesting that it may be less able to meet its short-term financial obligations. To make a more informed assessment, I would need to know the composition of the company's current assets and liabilities, as well as the industry average current ratio.
Y Ltd. reported a return on capital employed (ROCE) of 20% in Year 1 and 25% in Year 2. What does this change indicate about the company's profitability, and what might be the underlying causes of this improvement?
Y Ltd. reported a return on capital employed (ROCE) of 20% in Year 1 and 25% in Year 2. What does this change indicate about the company's profitability, and what might be the underlying causes of this improvement?
The increase in ROCE indicates an improvement in the company's profitability, suggesting that it is generating more profit from its capital employed. The underlying causes of this improvement might include increased sales, improved efficiency, or a reduction in costs. Further analysis of the company's financial statements would be necessary to determine the specific reasons.
Z Corporation reported a gearing ratio of 0.5:1 in Year 1 and 0.8:1 in Year 2. What does this change indicate about the company's financial structure, and what are the potential implications of this increase?
Z Corporation reported a gearing ratio of 0.5:1 in Year 1 and 0.8:1 in Year 2. What does this change indicate about the company's financial structure, and what are the potential implications of this increase?
The increase in the gearing ratio indicates an increase in the company's dependence on debt financing, which can increase the risk of financial distress. This may lead to higher interest costs and decreased financial flexibility, making it more challenging for the company to respond to changes in the market.
W plc reported a net profit margin of 10% in Year 1 and 12% in Year 2. What does this change indicate about the company's profitability, and what might be the underlying causes of this improvement?
W plc reported a net profit margin of 10% in Year 1 and 12% in Year 2. What does this change indicate about the company's profitability, and what might be the underlying causes of this improvement?
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Comparing the financial statements of X有限公司 and Y Ltd. over two years, it is observed that X有限公司 has a higher current ratio and a lower ROCE, while Y Ltd. has a higher gearing ratio and a higher net profit margin. What conclusions can be drawn about the financial position and performance of these two companies?
Comparing the financial statements of X有限公司 and Y Ltd. over two years, it is observed that X有限公司 has a higher current ratio and a lower ROCE, while Y Ltd. has a higher gearing ratio and a higher net profit margin. What conclusions can be drawn about the financial position and performance of these two companies?
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Study Notes
Accounting Ratios
Calculation Questions
- Calculate and compare the current ratio of a company over two years, using data from the balance sheet and discuss the implications of the changes on the company's liquidity.
- Determine the return on capital employed (ROCE) for a company over a two-year period, using data from the income statement and balance sheet, and analyze the implications of the changes on the company's profitability.
- Calculate the gearing ratio of a company over two years, using data from the balance sheet and discuss the implications of the changes on the company's financial risk.
- Calculate the net profit margin of a company over two years, using data from the income statement, and analyze the implications of the changes on the company's profitability and competitiveness.
Key Points to Consider
- Use data from at least two years to analyze trends and changes in the accounting ratios.
- Analyze the implications of changes in the ratios on the company's financial health, profitability, and competitiveness.
- Draw appropriate conclusions based on the calculations and analysis.
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