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To understand the financial position of a company, you need to analysed five most common financial ratios of it (Stephen, Randolph and Brandfrod 2016).
1. Short-term Solvency Ratio
2. Long-term Solvency Ratio
3. Turnover or Asset Utilization Ratio
4. Probability Ratio
5. Market Value Ratio

4.2 Short-term Solvency Ratio
Benedict Co.’s short-term solvency ratio was analysed to make sure that the company can pay its debts in a short period of time. Stephen, Randolph and Brandford (2016) have linked the short-term ratio with the creditors who provide short term loans. Understanding this ration is pretty essential for financial managers because they regularly work with banks and other short-term lenders.
Description 20×1 20×0 Difference (20×1-20×0)
Current Ratio 1.19 1.25 -0.06
Quick Ratio 0.7 0.75 -0.05

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The above calculation giving us a conclusion that Benedict Co.’s ratio for 20×1 is decreased compare to 20×0, which means that Benedict Co. could use its cash more efficiently in the short-term. This passes a signal to Benedict Co.’s leadership and senior management to work on their managerial skills. The decreased, witnessed in above calculation, in quick ratio means that its inventory has been increased from 2600 USD to 5200 USD as witnessed in Table 2. An increase in the inventory means that the company is less likely to be liquidated.

4.3 Long-term Solvency
The long-term solvency ratio is analysed to know the ability of a company whether it can meet its long-term commitments or not.
Description 20×1 20×0 Difference (20×1-20×0)
Debt Ratio 0.45 0.33 0.12
Debt Equity Ratio 0.81 0.48 0.33
Equity Multiplier 1.81 1.48 0.33
Time Interest Earned 11.4 20.8 -9.4
Cash Coverage Ratio 11.4 20.8 -9.4

As shown above Benedict Co.’s total debt ratio has been increased by 0.12 in 20x1compared to last year (20×0), this means that the company is using more debt in this year and making a 0.45 debt for each 1USD in total assets, there is 0.55 USD equity for every 0.45 USD in debt. As shown in Table 1, the total liabilities increased from 5100 USD in 20×0 to 10800 USD 20×1, which is almost twice compared to last year. Being high in debt is a great concern for the for the investors/customers of the company because they look for a stable company which is less likely to be liquidated. The other concern for the investors/customers is that company has been 11.4 times less responsive to its interest obligation compared to the year 20×0.

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