Problem 2: Are the liquidity ratios, the profitability ratios, the solvency ratios used for wage negotiations, takeovers and mergers, and private share purchases?
To answer problem 2, the company liquidity ratio, profitability ratio and solvency ratio were computed and presented in succeeding tables.
Table 8: Distribution of current ratio of the selected banks
---------------------in United State of America
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Bank---------------- 2004-------2005-----2006----2007----2008
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1. Compass Group
-----------PLC --------0.836------0.718-----0.988-----1.059------0.805
2. Toronto
----Dominion Bank --1.888------1.208-----1.053-----1.133-------0.585
3. Harris Corp-------- 2.833------2.229-----2.004-----1.157-------2.057
4. Morgan Stanley ---1.048-------1.128-----0.862-----0.912------0.696
5. Boeing Co ----------0.752------0.779-----0.774-----0.865------0.840
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Table 8 shows the distribution of current ratio of the selected banks in United State of America. It reveals that Compass Group PLC had the ability to pay their balances on time except in 2005 as evidenced by the values 0.836, 0.718, 0.988, 1.059, and 0.805 respectively. This means that there is probability for the company to increase the wages of their employees. Otherwise, the company has the ability to take over another company with the same perspectives. This also means that private investors may purchase stocks of the company.
Toronto Dominion Bank current ratio decreased from 2004 to 2008 as evidenced by the values 1.888, 1.208, 1.053, 1.133, and 0.585. This means that Toronto Dominion Bank may have opted to cut jobs in 2008. This is because the company liabilities increased in 2008. In this case there will be no wage increases for the employees. This company may also opt for mergers to increase company credibility aside from increasing the total assets, total liabilities and common stock equity.
Harris Corp had a good current ratio as evidenced by the value of 2.833, 2.229, 2.004, 1.157, and 2.057 respectively. It is obvious that the value of the current ratio is more than one, meaning their current assets were very high in relation to the current liabilities. This means that the company can pay their bills on time or even before the due time. This also means that company can give wage increase for employees, and can afford to takeover another company.
Morgan Stanley current ratios are 1.048, 1.128, 0.862, 0.912, and 0.696 respectively. It reveals that Morgan Stanley has decreased current ratio in 2008. This means that the current liabilities were higher than the current assets in 2008. This also means that the company paid their debt in 2008. At this period the stocks were issued to settle the liabilities.
Boeing Co has a current ratio value of 0.752, 0.779, 0.774, 0.865, and 0.840 respectively. It is clearly seen in the table that the values in 2007 and 2008 were above 0.80 which means that the company has the ability to pay outstanding debt.
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