You are comparing two companies in the same industry. You have determined that Ace Corp. depreciates its plant assets over a 40-year life, whereas Liu Corp. depreciates its plant assets over a 20-year life.
Discuss the implications this has for comparing the results of the two companies.
Comment on the usefulness of these ratios:
1. Current ratio
2. Receivable turnover
3. Inventory turnover ratio
4. Debt to total assets
5. Times interest earned ratio
6. Return on common stockholders’ equity ratio
7. Profit margin ratio
8. Gross profit rate
9. Earnings per share
10. Price to earnings, PE ratio
How do you calculate each ratio?