2 discussion questions Essay Example | Topics and Well Written Essays - 750 words

2 discussion questions - Essay Example The business may also have seasonal nature. Liquidity ratios: Company A is more appealing to a potential lender – its current ratio is about the industry average while Company B’s is way less. Moreover, A’s quick ratio exceeds average (which, though, may be a sign of not very efficient cash and cash securities management). Efficiency ratios: for the industry in general average collection period decreased by 2 days in 2002, and inventory turnover increased. Turnover growth rate for both A and B was positive but less than industry average. Additionally, average collection period went up. Collection discipline and overall asset management should be examined closely. Profitability ratios: Company B has an advantage vs. A in all three categories, though both companies and the industry overall show positive growth. Using Du-Pont system (see graphs on the next page), one can see that both companies have lower than average asset turnover but B compensate for it with high operating profit margin and achieves high ROA. By dividing the book value of UPS ($16.884bln) by the number of shares (1.07bln as indicated at Yahoo Finance resource) we get book value per share of $15.78. Market value per share as of 3rd January 2007 is $74.97. For FDX, book and market value per share equal to $37.48 ($11.511bln / 307.12M ) and $109.77. UPS market value can be calculated as $74.97 per share x 1.07bln shares = $80.218 bln and its market value added is $80.218bln - $16.884bln = $63.334bln. FDX market value: $109.77 per share x 307.12M shares = $33.712 bln and market value added equals to $33.712 bln - $11.511bln = $22.210bln. A difference between book value and market value of a company exists because investing into a company is not equivalent to buying its building or production lines; it is investment into the way company’s assets are utilized,