Interpret the ratios of Best Computer and draw inferences about the company”s financial performance and financial condition—ignore the industry ratios.

The Tristar Mutual Fund manager is considering an investment in the stock of Best Computer and asks for your opinion regarding the company. Best Computer is a computer hardware sales and service company. Approximately 50% of the company”s revenues come from the sale of computer hardware. The rest of the company”s revenues come from hardware service and repair contracts . Below are financial ratios for Best Computer and comparative ratios for Best Computer”s industry. The ratios for Best Computer are computed using information from its financial statements.

	Best Computer	Industry Average
Liquidity ratios
Current ratio	3.45	3.10
Acid-test ratio	2.58	1.85
Collection period	42.19	36.60
Days to sell inventory	18.38	18.29
Capital structure and solvency
Total debt to equity	0.674	0.690
Long-term debt to equity	0.368	0.400
Times interest earned.	9.20	9.89
Return on investment
Return on assets	31.4%	30.0%
Return on common equity	52.6%	50.0%
Operating performance
Gross profit margin	36.0%	34.3%
Operating profit margin	16.7%	15.9%
Pre-tax profit margin	14.9%	14.45%
Net profit margin	8.2%	8.0%
Asset utilization
Cash turnover	40.8	38.5
Accounts receivable turnover	6.90	8.15
Sales to inventory	29.9	28.7
Working capital turnover	8.50	9.71
Fixed asset turnover	15.30	15.55
Total assets turnover	3.94	3.99
Market measures
Price-to-earnings ratio	27.8	29.0
Earnings yield.	8.10%	7.9%
Dividend yield	0%	0.5%
Dividend payout rate	0%	2%
Price-to-book	8.8	9.0

Required:

a. Interpret the ratios of Best Computer and draw inferences about the company”s financial performance and financial condition—ignore the industry ratios.

b. Repeat the analysis in (a) with full knowledge of the industry ratios.

c. Indicate which ratios you consider to deviate from industry norms. For each Best Computer ratio that deviates from industry norms, suggest two possible explanations.