Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply. A decline in the debt-to-equity ratio implies a decline in the creditworthiness of the firm. A plausible reason why Blue Hamster Manufacturing Inc.’s price to free cash flow ratio has decreased is that investors expect lower cash flow per share in the future. A decline in the inventory turnover ratio could likely be explained by operational difficulties that the company faced, which led to duplicate orders placed to vendors. A decline in the inventory turnover ratio can be explained by the new inventory management system that the company recently adopted, which led to more efficient inventory management.

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Answer:

A decline in the debt-to-equity ratio implies a decline in the creditworthiness of the firm

and

A plausible reason why Blue Hamster Manufacturing Inc.’s price to free cash flow ratio has decreased is that investors expect lower cash flow per share in the future

Explanation:

Please refer the calculated ratios below

Ratios Calculated    

                                            Year 1       Year 2 Year 3

Price to cash flow                6.80         4.76         3.81

Inventory turnover                13.60 10.88 8.70

Debt to equity                 0.60 0.48 0.38

The statements that can be included in the analysis report include:

  • A decline in the debt-to-equity ratio simply means when there is a reduction in the creditworthiness that the firm has.
  • A plausible reason why Blue Hamster Manufacturing Inc.’s price to free cash flow ratio has decreased is that there are investors who expect lower cash flow per share in the future.

The following information were given in year 1:

Price to ratio flow = 6.80

Inventory = 13.60

Debt to equity = 0.60

The following information were given in year 2:

Price to ratio flow = 4.76

Inventory = 10.88

Debt to equity = 0.48

The following information were given in year 3:

Price to ratio flow = 3.81

Inventory = 8.70

Debt to equity = 0.38

In conclusion, based on the above information, the reduction in the debt-to-equity ratio from 0.60 to 0.38 simply means that there's a reduction in the creditworthiness that a firm has.

In conclusion, the correct options are A and B.

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