Question

The Boeing Company is under heavy investigation into the disastrous 737 Max events. The company is part of the Aerospace and Defense Industry.

Currently it appears that some key financial ratios are very close to industry norms or averages.

Current Ratio 1.03 times; Return on Assets 2.69%; Long-term Debt Ratio 17%.

As learned in Ch 3, Return on Assets (ROA) reflects both profit margin and the company's operational efficiency.

The discussion question: Is Boeing ready for what might result from the investigation? Specifically include the potential effects on the financial ratios above and why.

Answer 1

I would like to throw some light on the said ratio

Current ratio- It represents the ability of a company to pay its debt. The ideal ratio should be 2 but in the given sums it is only 1.03 that means the company ability to pay debt is not so good.

Long term debt ratio- it represents company having debt less than it's asset. The ideal ratio should be less than 50% but in this case it is 17% that means the company has more asset than its debt

Return on Asset- it represents return of the company on its asset. Higher the value is good for the company.

Ans1- As per current situation Boeing is not ready for what might result from investigation.

Ans- Based on the about explanation it seems that the company ability to pay is not so good because current ratio is less than 2