Use and Interpretation of Financial Measurements
Shown Below Are Various

question 11

Essay

Use and interpretation of financial measurements
Shown below are various financial measurements for two companies which are similar in size and sell similar products:
Instructions: You are to enter code letters in the spaces provided in the two right-hand columns.
In the first column, indicate which of the following three groups probably would be most interested in the specified financial measurement. Identify one group, using the following code letters: STC = indicating short-term creditors, LTC = indicating long-term creditors, and S = indicating stockholders.
In the second column, enter an X or a Y to indicate whether your "most interested group" would prefer the measurement results reported by Co. X or Co. Y.
Consider each financial measurement independently of the others.
$$\begin{array} { | l | l | c | c | c | c | } \hline & { \text { Financial Measurement } } & \text { Co. X } & \text { Co. Y } & \begin{array} { c } \text { Most } \\\text { Interested } \\\text { Group }\end{array} & \begin{array} { c } \text { Most } \\\text { Favorable } \\\text { Result }\end{array} \\\hline \text { (a) } & \text { Accounts receivable turnover } & 5 & 8 & & \\\hline \text { (b) } & \begin{array} { l } \text { Equity ratio (assume for both } \\\text { companies the return on assets } \\\text { is } 10 \% \text { and the rate of interest } \\\text { paid to creditors is } 11 \%\end{array} & 40\%&60\% & & \\\hline \text { (c) } & \text { Operating cycle } & 54 \text { days } & 218 \text { days } & & \\\hline \text { (d) } & \begin{array} { l } \text { Percentage change in net } \\\text { income }\end{array} & + 6 \% & - 12 \% & & \\\hline \text { (e) } & \text { Interest coverage ratio } & 11 & 3 & & \\\hline\end{array}$$

---

Definitions:

Individualized

Tailored or customized to meet the specific needs or preferences of an individual.

Zone of Tolerance

The range within which customers are willing to accept variations in service delivery and quality.

Voice-of-customer Quotient

A metric or approach that measures the extent to which a company's products or services align with the expectations and needs of its customers.

Service Providers

Companies or individuals that offer services to others in exchange for compensation, often in sectors like telecommunications, health, or education.