Question

For each ratio listed, identify whether the change in ratio value from 2014 to 2015 is usually regarded as favorable or unfavorable.
Ratio 2015 2014
1. Profit margin 9% 8%
2. Debt ratio 47% 42%
3. Gross margin 34% 46%
4. Acid-test ratio 1.00 1.15
5. Accounts receivable turnover 5.5 6.3
6. Bank earnings per share $1.25 $1.58
7. Inventory turnover 3.6 3.4
8. Dividend payout 2.0% 1.2%

Answer 1

Answer:

1.  Favorable

2. Unfavorable

3. Unfavorable

4. Favorable

5. Favorable

6. Unfavorable

7. Favorable

8. Favorable

Explanation:

1.  Favorable

Less Profit is now being earned per sale

2. Unfavorable

More Debt more Financial risk

3. Unfavorable

Less Profit is now being earned per sale

4. Favorable

A lower ratio is good shows efficiency utilization of resources

5. Favorable

The company is efficient in collection of debt

6. Unfavorable

The earning per share is lower

7. Favorable

More efficient in inventory management

8. Favorable

More return given to investors