Case 3

1. Liquidity Ratios are used to measure the short-term solvency of a company. They show the ability of the company to quickly convert its assets into cash to pay its short-term debts. DCM Molding Company had higher ratios than Plastichem over the course of years. Since DCM had higher ratios, they had more liquid within the company and they are less likely to experience financial distress in short-term basis. Leverage Ratios are used to measure the extent of the company's financing with debt relative to equity and its ability to cover interest and other fixed charges. They address the company's long-term ability to meet its financial leverage. Overall the Plastichem had higher leverage ratios than DCM. Because they were higher they are more in debt, which signals the possibility they will be unable to earn enough to satisfy its debt obligations. Profitability Ratios measure the overall earnings performance of a company and its efficiency in utilizing assets, liabilities and equity.

2. An income statement in which each account is expressed as a percentage of the value of sales it is expressed as a percentage of the value of sales. Common size income statement analysis allows an analyst to determine how the various components of the income statement affect a company’s profit. The two financial statements that analysts common size most often are the income statement and the balance sheet. Analysts study the income statement for insights into a company's historic growth and profitability. The balance sheet provides relevant information about a company's liquidity and financial strength. To answer the question Jay is right to prepare a analysis on the two companies. The income statement shows that the DCM Company was popular in growth and profitability over Platichem.

3. DuPont analysis tells us that ROE is affected by three things: Operating efficiency, asset use efficiency, and financial leverage. The DuPont analysis is believed to measure assets at gross