Financial Ratios of Company P on Consolidated and Unconsolidated Basis

)

Financial ratios of Company P on consolidated and unconsolidated basis

Unconsolidated Consolidated

ROA 7.50% -5.70%

Current ratio 49.17% 128.70%

Solvency ratio 68.75% 44.63%

A company's return on assets (ROA) is a key indicator of the overall productivity of the company, and shows the percentage of net profit a company earns relative to its total assets. On unconsolidated basis Company P shows a positive ROA, whereas on consolidated basis ROA is negative, as the subsidiary of Company P – Company S – operated at a loss instead of a profit in 2011 accompanied with the increase in long-term debt. The probable reason for a net loss of Company S can be the substantial decrease in demand after the recent crunch and, thus, corresponding increase in inventories. We also assume that the increase in inventories might have lead to the decision of the managament to decrease the prices of goods sold in order to decrease the volume of inventories. Income Statement of Company P suggests that the price of goods sold equals the costs of goods sold.

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. On unconsolidated basis the Company P has a current ratio below 100%,