Island |
Burger |
Fink |
Roland |
||
Ratio |
Electric Utility |
Heaven |
Software |
Motors |
|
Current ratio |
1.06 |
1.35 |
6.79 |
4.55 |
|
Quick ratio |
0.92 |
0.87 |
5.23 |
3.73 |
|
Debt ratio |
0.69 |
0.45 |
0.04 |
0.34 |
|
Net profit margin |
6.25% |
14.33% |
28.46% |
8.43% |
Assuming that his uncle was a wise investor who assembled the portfolio with care, Robert finds the wide differences in these ratios confusing. Help him out.
a). Investors won't put all money into software companies because:
- By placing all of the money in one stock, the benefits of
reduced risk associated with diversification are lost. (investing
in a single sector is risky as diversification won't happen.)
-Although the software industry has potentially high profits and
investment return performance, it also has a large amount of
uncertainty associated with the profits. (High return comes with
high risk so putting all money in one stock is not the wisest
move.)
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