Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 31

Interpreting Profitability, Liquidity, Solvency, and P/E Ratios
Mattel and Hasbro are the two biggest makers of games and toys in the world. Martel sells nearly $6 billion of products each year while annual sales of Hasbro products exceed $4 billion. Compare the two companies as a potential investment based on the following ratios:

Required:
1. Which company appears more profitable Describe the ratio(s) that you used to reach this decision.
2. Which company appears more liquid Describe the ratio(s) that you used to reach this decision.
3. Which company appears more solvent Describe the ratio(s) that you used to reach this decision.
4. Are the conclusions from your analyses in requirements 1-3 consistent with the value of the two companies, as suggested by their P/E ratios If not, offer one explanation for any apparent inconsistency.