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An Investor Seeks to Compare the Financial Characteristics of Four

Question 13

Multiple Choice

An investor seeks to compare the financial characteristics of four companies that are investment possibilities.Based solely on the data provided in the following ratios,which company would provide the lowest investment risk?  Ratio  Company A  Company B  Company C  Company D  Current 1.801.551.851.10 Proprietorship 65.00%45.75%71.00%31.50% EBIT/long-term funds 18.50%14.60%17.00%15.50% Return on shareholders funds 14.50%11.50%14.50% Debt/gross cash flow 4.91 (years)  2.80 (years)  2.91 (years)  3.85 (years)   Interest cover 3.00 (times)  2.10 (times)  3.10 (times)  2.30 (times)   P/E 19.50 (times)  7.70 (times)  5.21 (times)  12.10 (times)   NTA/price 1.02 (times)  0.96 times)  1.00 (times)  0.99 (times)  \begin{array} { | l | l | l | l | l l } \hline { \text { Ratio } } & { \text { Company A } } & { \text { Company B } } & { \text { Company C } } & { \text { Company D } } \\\hline \text { Current } & 1.80 & 1.55 & 1.85 & 1.10 & \\\hline \text { Proprietorship } & 65.00 \% & 45.75 \% & 71.00 \% & 31.50 \% \\\hline \text { EBIT/long-term funds } & 18.50 \% & 14.60 \% & 17.00 \% & 15.50 \% \\\hline \text { Return on shareholders funds } & 14.50 \% & 11.50 \% & 14.50 \% & \\\hline \text { Debt/gross cash flow } & 4.91 \text { (years) } & 2.80 \text { (years) } & 2.91 \text { (years) } & 3.85 \text { (years) } \\\hline \text { Interest cover } & 3.00 \text { (times) } & 2.10 \text { (times) } & 3.10 \text { (times) } & 2.30 \text { (times) } \\\hline \text { P/E } & 19.50 \text { (times) } & 7.70 \text { (times) } & 5.21 \text { (times) } & 12.10 \text { (times) } \\\hline \text { NTA/price } & 1.02 \text { (times) } & 0.96 \text { times) } & 1.00 \text { (times) } & 0.99 \text { (times) } \\\hline\end{array}


A) Company A
B) Company B
C) Company C
D) Company D

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