Interpreting Profitability, Liquidity, Solvency, and P/E Ratios
Mattel and Hasbro are the two biggest makers of games and toys in the world. Mattel 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:
Ratio
Mattel
Hasbro
Gross profit percentage Net profit margin Return on equity EPS
45.5% 6.5% 17.1% $ 1.05
57.7% 7.3% 21.8% $ 2.18
Receivables turnover ratio
8.9
10.5
Inventory turnover ratio Current ratio
XXXXXXXXXX
Debt to assets
0.31
0.35
P/E ratio
15.9
13.8
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
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