The Liquidity Ratio of Delta Discussion Assignment

The Liquidity Ratio of Delta Discussion Assignment

Q4Delta has a lower debt ratio than its industry norm Alfa has a higher ratio relative to its industry. Both companies exceed modestly their industry norm with respect to interest coverage. The lower debt-to-equity ratio and higher interest coverage for Alfa’s industry suggests that its industry might have more business risk than the industry of which Delta is a part.

The liquidity ratio of Delta is higher than the industry norm, whereas that for Alfa is lower than the industry norm. Although all three financial ratios for Alfa are better than are those for Delta, they are lower relative to the industry norm. Finally, the bond rating of Delta is much better than is that of Alfa, being an Aa grade and higher than the industry norm.

The bond rating of Alfa is one grade below the very lowest grade for investment-grade bonds. It is also lower than the typical company’s bond rating in the industry. If the industry norms are reasonable representations of underlying business and financial risk, we would say that Alfa had the greater degree of risk.

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