How could liquidity ratios be used by investors to determine whether or not to invest in a company?

DQ: 01

Ratios provide the users of financial statements with a great deal of information about the entity.  Do ratios tell the whole story?  How could liquidity ratios be used by investors to determine whether or not to invest in a company?

DQ: 02

Profit Margin

Year Ending December 2012

Year Ending December 2011

Year Ending December 2010

Revenues

40,000

35,000

33,000

Operating Expenses

Salaries

15,000

10,000

9,000

Maintenance and Repairs

6,000

9,000

10,000

Rental Expense

2,500

2,500

2,500

Depreciation

2,000

2,000

2,000

Fuel

4,000

3,500

2,500

Total Operating Expenses

29,500

27,000

26,000

Operating Income

10,500

8,000

7,000

Sales and Administrative Expenses

6,000

4,000

3,000

Interest Expense

2,500

2,000

1,000

Net Income

2,000

2,000

3,000

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012.  Calculate the profit margin  for each of these years.  Comment on the profit margin trend.

Most Important Ratio Journal

Reflect for a moment on the ratios (working capital, current ratio, quick ratio, debt to asset, debt to equity, times interest earned, gross margin and net margin) presented this week.  If you were considering investing in a company what ratio would be the most important to you?  Formulate and argument to defend your position.

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