Week Two Checkpoint 1
Week Two Check Point: Financial Ratios
Leela Leinius
Axia Collage at University of Phoenix
Week Two Checkpoint 2
Part one:
To determine Current ratio
Total current assets $55,515
Total current liabilities $74,892
$55,515 / $74,892 = .74
This means that GM has $0.74 in current assets f or ever $1 of current liabilities
To determine Debt ratio
Total assets $482,029
Total debt (liabilities) $453,906 plus Minority interests $397 = $454,303
$454,303 / $482,029 = .94
This means that GMs creditors are financing 94% of the firm’s total assets.
To determine Return on stockholders’ equity (ROE)
Net income $2,805
Total stockholders’ equity $27,726
$2,805 / $27,726 = .10
This means that the return on stockholders’ equity was 10%
To determine Return on investment (ROI)
Net income $2,805
Total assets $482,029
$2,805 / $482,029 = .006
This means that the return on investment was 0.6%.
Week Two Checkpoint 3
Part Two:
If you are assigned to the lender cluster, state whether you would choose to accept or reject a loan of several million dollars to this company
As a lender, looking at GM’s current ratio, debt ratio, and ROI, I would be in favor in issuing GM a loan. The current ratio suggests that GM does not have enough liquidity on hand to meet short-term obligations. GM’s debt ratio is very high. About 94% of its total assets are financed by creditors. This would suggest that there would be a good chance that GM may not have enough cash flow in an economic recession to meet interest payments. If GM should go bankrupt, there would not be sufficient funds recovered fr ...