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# Financial Analysis 334 - Math Problem Example

Summary to math problem on topic "Financial Analysis 334"
a) Given the ratios, we can clearly see that the position of Smith Company and Jones Corporation from the lens of ratio analysis. If we look at the liquidity ratios which tell us how much current asset does a firm have to pay-off of its short-term debts. In the case of Smith Corporation, the company has around \$2.5 to pay-off every \$1 of debt…

## Extract of math problem "Financial Analysis 334"

Download file "Financial Analysis 334" to see previous pages... In this case, if subtract the stock from current assets, still both companies can pay off their debts quite easily as their Acid-Test Ratio is equal to or greater than 1. This shows that to pay every single dollar of debt the company has the backing of adequate current assets. However, if we look the firms through the lens of Interest Coverage Ratio and if our debt commands interest from the company than,
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we can clearly see that Jones company can cover much higher rates of interest. As a result, Jones Corporation won't default and will be able to pay all its debts and hence a short-term loan should be made to Jones Corporation given the two different scenarios. However, one must also state that if our loan does not command any interest, then this loan should be made to Smith Corporation.
b) If we look at the profitability condition of the two companies, we can clearly see that Jones Corporation is more profitable. This can shown by the companies greater net profit over sales ratios as compared to Smith Corporation Ratios. In the light of these ratios, Jones Corporation is earning around \$7 on every \$100 worth of sales. Similarly, Smith Corporation is earning \$4 on every \$100 worth of sales. ...Download file "Financial Analysis 334" to see next pagesRead More
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