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Problem #4 Ratios Mr. Low Life was considering buying stock in Its All Wonderful Corporation....

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Accounting

Problem #4 Ratios

Mr. Low Life was considering buying stock in Its All Wonderful Corporation. To do so he computed several ratios as listed below:

a) Current Ratio

b) Inventory Turnover Ratio

c) Profit Margin Ratio

d) Debt to Equity Ratio

e) Free Cash Flow Ratio

How would the above ratios be affected if:

Equipment was purchased with cash.
Additional sales were made.
Administrative expenses increased
AP was increased
The company expected to be sued over a warranty claim.

Required: Give the effect of each transaction on the ratios given. Note that you will have 5 answers for each ratio.

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