Company A Company B Company C
Total Net Profit (current year) $1,000,000 $1,000,000 $1,000,000
Cash Balance (current year) $200,000 $100,000 $20,000
Current ratio 2 times 3 times 4 times
Gross profit ratio 35 % 20 % 18 %
Net profit ratio (based on PAT) 20 % 8 % 4 %
Return on equity 10 % 10 % 10 %
Receivable days 60 days 40 days 90 days
Inventory days 50 days 65 days 120 days
Payable days 100 days 60 days 30 days
Z score 4.75 (B+)
Gray Zone 4.95 (BB-)
Gray Zone 5.25 (BB)
Gray Zone
NOTE: All the three companies are in same industry and have same set of variables exposed to them.
i. From the above information, comment on the financial health of the stated companies.(10marks)
ii. Highlight the positive factors and red flags for each of the stated companies. (5 marks)
iii. As an investor in the equity market, choose one company for your investment plans. Give proper justification.
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